
Class 
Book 



i. 



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Copyright}!^. 



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COPYRIGHT DEPOSIT. 



THE 



ELEMENTS 



ov 



POLITICAL ECONOMY 



DV 



FRANCIS WAYLAND, D.D 

LATB PRESIliENT OF BBO'WN rNlVKBSITT. 



KECA8T bY 

AARON L. CHAPIN, D.D 

nixfiisENT OF bei.o:t fxnxacB 



NEW EDITION OF 1886. 



NEW YORK •.• CINCINNATI •.• CHICAGO 

AMERICAN BOOK COMPANY 



LIBRARY of CONGRESS 
Two Copies Received 

MAR 20 ^906 



n Copyright Entry 
, CLASS CL XXc, No. 



3 J^^ 

COPY 






'A 



DR. FRANCIS WAY LAND'S TEXT-BOOKS 



mOSAL SCTEXCEf I vol. 12tno. Revised J ugt before the au1h«r'» 

death. 
mORA L SCIENCE, 1 vol. l8mo. Abridged by the author and 

adapted to schools and academies. 
INT±.J.LECTVAL PUJ LOSOPIIY, t vol. 12mo. Revised Jttsi 

before the author's death. 
POLITICAL ECONOMY, I vol. 12mo. Revised by A. L. Chapin, 

in 1878 and 1886. 
POLITICAL ECONOMY, 18mo. Abridged by the author and 

adapted to schools and academies. 

As an educator, no man in this country ever stood higher than Dr. Way- 
land. These books were built up from his work in the class-room, and are, 
therefore, adapted to meet the wants of both teacher and scholar. They art 
w lUMd in most of the leadinsr schools and colleges in tne country. 



Copyright, 1878 1886, by Sheldon & Company. 
Copyright, 1906, by Robert C. (.'hapin. 






"FNR. WAYLAND'S work on Political Economy wai 
'^^ the first attempt in our country to present the 
principles of that science in the form of a text-book of 
instruction. His aim was to put into simple statement 
under a natural and methodical arrangement, the doc- 
trines of Adam Smith, Say and Ricardo, who were in 
his day, as they still continue to be, leading authorities 
on the subject. To the public generally the whole sub- 
ject was new. Dr. Wayland therefore used abundant 
illustration and frequent repetition in this introduction 
of the science to youth and practical business men. Hia 
effort was attended with remarkable success, and no 
other text-book on the subject nas gained such general 
acceptance and been so extensively and continuously 

But the forty years that have elapsed since Dr. Way- 
land finished his work, have been years of wonderful 
activity and enterprise in all departments of productive 
hidustry and trade. Many practical problems of Politi- 
cal Economy have thus come to be studied in a new light 
and have elicited discussions earnest and profound from 



ft PEEFAOB. 

philosophers, statesmen, and practical manufacturers and 
merchants. The science itself has made progress, and its 
elementary principles have become more or less familiar 
and are readily apprehended by all. Special treatises on 
Capital, Labor and Wages, Money and Currency, Taxa- 
tion, Free Trade, etc., have thrown much light on the 
complicated problems which concern the development 
and distribution of wealth. While these things have 
caused little change in the real elements of the science as 
presented by our author, they demand that as a text-book 
of instruction adapted to our times, his work should be 
very considerably modified. 

Some months ago, the present publishers of Dr. 
Wayland's book requested the writer to make a revision 
of that work. Fully believing that the doctrines and 
the general aim and methods of that eminent instructor 
on this subject were sound and wise, and that the press- 
ing want of the class-room in our institutions of higher 
education, was not fully met by any one of the excellent 
treatises before the public, he consented and assumed the 
nndertaking. It was soon found, however, that a mere 
revision of the book would not accomplish the desired 
object. Comparatively few pages of the original work 
cou.d be used as they stood. In the result, while scarcely 
any change has been made in the opinions presented, tlie 
arrangement and the forms of statement have been quite 
generally recast with considerable condensation and many 
needed additions. 



PBEFAOB. lU 

In the prosecution of his work, the writer has had 
chiefly in mind the wants of the class-room as suggested 
by an experience ot many years in the instruction of 
successive classes in eollege. His aim has been to give 
in full and proportioned, yet clear and compact statement 
tlie elements of this important branch of science, in their 
latest aspects and applications. In thus recasting the 
treatise, he has followed his habit before his own classes, 
and drawn freely from various writers, sometimes in 
formal quotations, but oftener by catching apt thoughts 
and happy expressions as they might serve his purpose. 
The writings of McCulloch, Mill, Fawcett, Thornton, 
Jevons, and Brassey, of England, and those of Bowen 
Perry, Carey, Thompson, A. Walker, F. A. Walker 
Sumner, and D. A. Wells, of our own country, have 
been thus freely referred to and drawn upon. 

The work in its present form is offered to the public, 
not as an original contribution to the science treated of, 
but as a compilation of well defined principles of the 
science, which, in the writer's view, are to be accepted 
as sound and true. On some disputed topics, positive 
opinions are expressed, with due respect for the sincerity 
of those who may think differently, but in the strong 
conviction that they will stand the test both of philosophj 
and of practical experience. 

A. LO. 

. ^BLon CoLLsex, IforcA 1. 1873. 



PREFACE TO THE NEW EDITION. 

IN this edition a few changes have been made. The 
course of passing events has given prominence to 
some issues which deserve special notice ; and experience 
in the use of the text-book has suggested a few modifica- 
tions which are believed to be improvements. 

The treatment of the second division on Consumption 
seemed too diffuse and it has been condensed. This gives 
room for a new chapter in connection with it on Over- 
production or Under-consumptioo. At the opening of 
the third division, a new chapter is introduced on- Owner 
ship of Land. The chapter on Free Trade and a Pro- 
tective Tariff has been recast with a view to a fairer pres- 
entation of the subject, by grouping together more 
closely and clearly the arguments on each side of the 
question. A few minor changes have also been made here 
and there, to give a plainer or more felicitous expression 
to the thought. 

The author's thanks are due to a number of teachers 
who have expressed satisfaction with the work as a text- 
book for their classes, and to some who have suggested 
friendly criticisms. The signs of the times are enforcing 
the importance of bringing our American youth to the 
careful study of the first principles of Political Economy. 
If his work shall help in any degree to meet this neces- 
sity, the author will find therein his most satisfactory 
reward. 

A. L. 0. 

Bbloit College, Aug. 1, 1886. 




CHAPTER L 

Preliminary Observations. 

risa 

Origin and Definition of Political Economy 3 

Fundamental Laws ....... 4 

1. Men's Desires and Nature's Resources. 2. Labor neces- 
sary. 3. Labor establishes the Rigbt of Property. 4. The 
Right of Property brings the Possibility of Exchange. 

Materials of the Science • 6 

Motive to effort, — Conflicting desires • 7 



CHAPTER IL 
Definitions and Divisions. 

»^ Wealth, — Errors respecting it 8 

1. Not identical with Money. 2. Does not include human 
beings and capacities. 3. Evidences of debt no part of 
general wealth. 4. Includes some things not tangible 
and durable. 

Sources of Wealth — Original — Secondary 10 

•How Wealth is increased 11 

Value — its strict definition. 11 

Distinct from Price, and from V tility. 

Limits of Value — Utility — Cost ....r 18 

<w4Law of Supply and Demand — Monopolies , 14 

The Practical End of the Science 15 

It« four leading Divisions , IS 



riii OONTEKTS. 



FII\ST DIVISION. 

CHAPTER III. 

^ Production. 

fkat 

Its Elements— Nature's Gifts — Human Labor <,.-., H 

Threefold Subdivision ,. 18 

Labor — Capital — Tlie CoSperation of these two forcei. 

CHAPTER IV. 
Labpr, 

Definition — A Measure of Value \% 

Kinds of Labor. 1. Physical labor. 2. Mental labor 2C 

v^ What Physical labor does 2(? 

What Mental labor does directly 21 

1. Discovery. 2. Invention. 3. Oversight. 

Labor indirectly concerned in production 24 

Labor as Productive or Unproductive 25 

This distinction discarded. 

Chap-ges effected by Labor 20 

1. Transmutation. 2. Transformation. 3. Transportation 

Their Relation to each other 28 



CHAPTER V. 

Means for Increasing the Effectiveness of 
Human Labor, 

NaturaJ Agents defined 32 

Agents which create Momentum 85 

Animate Agents £5 

Inanimate Agents ^ 

1. Gunpowder, Dynamite. 2. Wind. 3. Water-power. 
4, Steam. 

Advantages of Inanimate over Animate Agents fi 

1. Amount of Momentum. 2. Continuity. 3. Economy. 
4. Personal Safety. 5. Freedom from Pain. 6 Increased 
Velocity. 



COIiirTE:NTS. IX 

rA8B 

Agents by which Momentum is applied . . 43 

Effects produced , 45 

1, Change of Direction. 2. Power for Velocity. 3. 
Power concentrated. 4. Delicate operations. 5. Power 
accumulated. 6. Sudden force made continuoun. 
Lord Jeffrey's description of the Steam-engine ..<>. tt 

CHAPTER VI. 
Division of Labor. 

i/fhe Principle — how illustrated ,<- 4o 

'Essential to Civilization 49 

The Principle implies two things 61 

1. Analysis. 2. Distribution of parts. 

Advantages of Division of Labor I 

1. Shortens apprenticeship. 2. Saves time in changing 
operations. 3. Saves time in adjusting tools. 4. In- 
creases skill. 5. Suggests inventions. 6. Employs di- 
verse capacities. 

Application to Intellectual Labor 5Q 

CHAPTER VIL 
Limitations to Division of Labor. 

Pour Restrictions 58 

1. The Nature of the Process. 2. Deficiency of Capital. 

8. Limited demand — Circumstances affecting demand. 

a. Number of Consumers, b. Wealth of people, e. 

Cost of the article, d. Facilities of Transportation. 

4. Limits of Executive Capacity. 

Evils Incident to Division of Labor 64 

1. Danger to Health. 2. Contraction of Mind. 3. Loss 
of Independence. 4. Combinations. 

International Division of Labor , . , = 66 

Conditions of increase of Wealth 73 

1. Understanding Nature's Laws. 2 Means of applying 
them. 3. Adjustment of Labor. 4. Regard to local Re- 
sooroea. 



z coiirrBKTS. 

CHAPTER VIIL 

Capital. 

tuet 

DefiDition of Capital , 71 

Not identical with wealth — Not synonymous willi Money. 

In Diigin, the fruit of past labor saved 74 

Forms of Capital 7fl 

1. Materials. 3. Implements and Machinery. 3. Means 
of Sustenance. 4, Finished products. 

Consumption of Capital 79 

Destruction necessary to production of value. 

Productive and Unproductive Capital .... 81 

This distinction discarded. 

Fixed and Circulating Capital 83 

The line of distinction not absolute. The tendency to 
turn circulating into fixed capital involves two dangers — 
1. That of over-production. 2. That of too sudden ab- 
sorption of available means. Money to be classed as 
fixed capital. 

JHAPTER IX. 
Co-operation of Labor and Capital. 

%/ Labor and Capital true Partners 88 

Most harmoniously united in one person 89 

Reasons why this cannot be universal 90 

1. Capital tends to rapid increase. 2. Men have diverse 
capacities and tastes. 3. Large establishments necessary 
to some forms of production. 
CJonditions which favor the Union of Labor and Capital , .... 9 
1. General distribution of capital. 2. Ratio of capital to 
0*^ number of laborers. 3. Assurance of just reward to 
y^ ^ each. This depends on a. Division of property. 6. 
Just laws. c. Unrestricted freedom. 4. Intellectual 
and Moral culture. 
Combinations and Co-operative Associations IIC 



CONTENTS. XI 



SECOND DIVISION. 

CHAPTER X. 
Consumption. 

PA6B 

Tlie Nature of Consumption 112 

Involuntary Consumption 113 

1. Natural. 2. Accidental. 3. Immaterial and Notional. 

Voluntary Consumption 115 

Consumption for Reproduction 116 

Economic rules — for Capital — for Labor. 

Consumption for Gratification 118 

Kinds of Gratification, 1. Those essential to health and 
life. 2. Those which delight sense and taste. 3. Intel- 
lectual gratifications. 4. Social gratifications. 5. Moral 
gratifications. Rule of economy in gratifications 120 

The Reciprocal relation between Production and Consumption 

for gratification 122 

Public Consumption — its nature 123 

Purposes to which it is applied 125 

1. Government support. 2. Public improvements. 3. For 
advance of science and intelligence. 4. Poi3ular educa- 
tion. ^. Care of defective classes. 6. To relieve poverty. 
7. For the nation's defense. 

Scale and Agents of National Expenditures 131 

OHAPTEE XL 
Over-production or Under-^onsumption, 

What is Over-production ? 133 

Its causes 13? 

a. Increased facilities of production, b. Large profits, c. 
Restricted desire, d. Reduced ability, e. Obstructions 
to transportation. 



xii CONTEl^TS. 

PAGE 

Means of Relief 134 

a. Suspend production. &. Increase tlie number of con- 
sumers. 

Can there be Universal Over-production ? 136 

Under-consumption 138 

Over-production not the chief cause of stagnation in business. . . 139 



THIRD DIVISION- 
CHAPTER XII. 
Distribution. 

t/ Ownership of Land - . 141 

Labor in appropriation establishes a right of property 143 

The claim extends beyond first-fruits 143 

The question of practical expediency 144 

Land in savage life — under the Feudal system — England's 
landed aristocracy — proposed nationalization of land — 
lands held in common-fee-simple in those who occupy and 
till the land. 

Lands for other than agricultural purposes 147 

Lands held im speculation 148 

• 
Distribution — conflict of interests 149 

Definition and scope of Distribution 150 

v^Communism and Socialism 153 

Parties to be recognized 158 

Subdivisions 158 

CHAPTEE XIII. 
The Remuneration of Labor. 

Terms used — Wages — Salaries — Fees 154 

Distinction of Nominal and Real Wages 156 

The dijfference caused by, 1. Fluctuations in purchasing 
power of money. 3. Forms of payment. 3. Regularity 
of employment. 4. Duration of power to labor. 



coi^te:n^ts. xiii 

PAGE 

Nominal and Real Cost of Labor 160 

Difference in industrial efficiency caused by, 1. Peculiari- 
ties of race. 2. Qualities of diet. 3. Personal habits. 
4. Intelligence of the laborer. 5. Technical education 
and environment. G. Cheerfulness and hopefulness in 
labor. 

Leading Considerations determining Wages 166 

1. Cost of living. 3. Value of products — the wage-fund 
theory. 3. Customary rate of v^ages. 4. Most influential 
of all, competition. Combinations to resist competition 
— Strikes — Trades-unions — Combinations of employers. 
'^' 5. The Golden Rule. 
*^he General Law of Wages 181 

OHAPTEE XIV. 
Variations in the Remuneration of Labor. 

Special Circumstances affecting Wages 183 

Ease or difficulty of employment — Skill required — Con- 
fidence reposed — Constancy of employment — Certainty of 
success. 

Salaries, Commissions and Fees 185 

Self-made men — Educated men — The learned professions 
— Artists, Authors — Force of Custom — Offices of honor. 

Remuneration for Women's labor 190 

a. Physical and mental constitution. &. Home sphere. 
c. Prospective marriage, d. The actual organization 
of industry, e. Feminine instincts. /. Partial sup- 
port from friends. 
The case of women of genius — Conclusions, 1. Absolute 
equality between the sexes unattainable. 3. Present in- 
equality unreasonable. 3. The true aim of efforts for 
reform. 4. Woman an equal partner in the home. 

CHAPTEE XV. 
Remuneration of Capital. 

Capital entitled to Remuneration 19''. 

Rent— its Definition , 199 

Several kinds of rent — Ricardo's theory. 



xiv CONTENTS. 

FAGB 

Rent of agricultural lands depends on 303 

1. Productiveness, by reason of a. Fertility. &. Situ- 
ation. 
3. Growtli and Concentration of Population. 
3, Incidental circumstances, a. Natural beauty of situ- 
ation. &. Character of neighborhood, c. Improve- 
ments. 

Rent of Mining Lands 309 

Rents in Cities 310 

The Fashionable quarter — Business centres. 

Why Rent is less than Interest 313 

1. Security of property in land. 3. Title easily estab- 
lished. 3. Influence of landholders. 4. Prevalent desires 
of men. 5. Prospective increase of value. 



CHAPTER XVI. 
Interest. 

Definition , 315 

Considerations determining Rate of Interest 318 

1. Risk, depending on a. Mode of employing capital. 
&. Character of borrowers, c. Character of govern- 
ment. 

3. Convenience of investment 331 

a. Facility of transfer. 6. Permanency of investment. 
c. Punctuality of Payment. 

3. Productiveness of capital 233 

a. Fertility of land. 6. Productiveness of industry, 
c. Demand for exchange. 

4. Ratio of Demand to Supply of Capital 2Ji?4 

Why Interest in a new country is high 325 

Advance of Settlement reduces Interest 236 

Freedom of Capital adjusts Supply and Demand 227 

Rate of Interest not an index of Prosperity 238 

1. Interest raised by risk indicates adversity. 2. Raised 
by increased productiveness, prosperity. 3. Reduced by 
diminished risk, prosperity, 4. Reduced by stagnation, 
adversity. 



COKTEKTS. • XV 

PAGE 

Usury Laws unreasonable » 230 

1. They violate the right of property. 3. Impossible to 
fix a price for capital. 3. The price of money especially 
variable. 4. Usury laws increase fluctuations of interest. 
5. They cannot be enforced. 

Dividends — Definition 234 

Dividends include Interest and Profits 237 



CHAPTEE XVII. 

Distribution of Profits. 

Definition of Profits 239 

Profits increased by spending less or producing more. 

Percentage on capital not a true measure of profits. 

Capital may not claim all the Profits 243 

Co-operative Associations 245 

Capitalists, Managers and Laborers to share Profits 246 



. CHAPTER XYIII. 
Revenues of the G-overnment. 

/a Problem of Political Economy 248 

Tvjtation — Adam Smith's Maxims 249 

Direct and Indirect Taxation 250 

Heavy taxes on injurious articles 25i 

Tariffs — Specific and Ad valorem Duties 253 

Two Systems of Taxation in America 254 

National Taxation chiefly Indirect by duties 255 

Also, a. Excises. &. Stamps, c. Licenses, d. Income tax. 

State Taxation — Direct 258 

Mode of assessment and collection. 

Taxing Evidences of Debt involves double Taxation 259 



XVI CONTENTS. 



FOURTH DIVISION. 

CHAPTEE XIX. 
Exchange. 

FAGB 

Nature of Exchange , , 263 

Value the centra] term 264 

Purchasing power — A relative term — ^Distinct from price 
— Implies utility and cost — Maximum and minimum lim- 
its — The general formula of value. 

The effect of variation of demand and supply depends on 
a. Durability of the article. 6. Ease of increasing sup- 
ply, c. The article as a necessity or a luxury, d. 
Relation to fashion. ■ 

J". S. Mill's Fundamental Principles of Exchange 267 

Three classes of articles. 1. Things which cannot be in- 
creased. 2. Things multiplied at moderate expense. 3. 
Things multiplied at extraordinary cost. 
Eespecting these it is to be observed, 
1. Value is a relative term, hence a general rise or fall of 
all values impossible. 2. Market value depends on de- 
mand and supply. 3. Things have a natural value to- 
wards which market value tends. 4. Natural value = 
cost value except with some things which have a scarcity 
value. 5. Things which cannot be increased have a per- 
manent scarcity value. 6. Monopoly value means scar- 
city value. 7. Tlie cost value of a thing = cost value of 
the most costly portion of it, sold. 8. Causes of perma- 
nent high value. 

The Necessity of Exchange 270 

International Exchange 272 

Agents of Exchange 375 

Retail merchants — Middle-men — Factors — Jobbers — Ship- 
ping merchants — Importers — Bankers — Brokers — Under- 
writers. 



COKTEKTS. xyil 

CHAPTER XX. • 
Money an Instrument of Exchange. 

PA&E 

Difficulties of Exchange by Barter 282 

Money Defined — Its two Functions 284 

A Standard of value — A Medium of exchange. 

Whatever measures Value must possess Value 285 

Essential qualities of a Medium of Exchange 287 

Stability and precision of value — Universal acceptable- 
ness — Di vi sibil ity. 

Articles used as Money 289 

Necessary qualities of Money 290 

Qualities which fit Gold and Silver for the purpose 293 

1. Intrinsically desirable. 2. They cost labor. 3. Large 
value in small bulk, 4. Divisible without loss. 5. Qual- 
ity uniform. 6. Value easily verified. 7. Indestructible. 
8. Adapted to each other. 
<3eneral Truths concerning Money 296 

1. Money and the article exchanged for it equal in cost. 

2. Universal commerce equalizes cost and supply of money. 

3. The amount of money email in proportion to the whole 
trade. 4. Increase of production and trade demands in- 
crease of money. 5. Abundance of money not a certain 
index of prosperity. 6. A false maxim refuted. 

Agency of Government respecting Money 299 

1. To define a legal tender. 2. To coin the metals. Coin- 
age must have regard to, 1. Purity of metal. 2. Size. 
3. Form. 
Seignorage — A uniform international coinage desirable. 

The question of a Double Standard 305 

Experience of the United States 306 

CHAPTER XXI. 
Credit an Instrumei^ of Exchange. 

The Nature of Credit 310 

The Forms of Credit 311 

1. Book Accounts. 2. Loans. 3. Mercantile Paper. 4. 
Bank Deposits. 5. Stocks. 6. Bonds. 7. Notes for Cir- 
culation. 



xyiii COHTEKTS. 

PAGE 

Tlie Useful Functions of Credit 314 

1. Itbrings wealth into use as capital. 3. Gives efficiency 
to industrial talent. 3. Quickens exchanges. 4. A direct 
instrument of exchange. 5. Credit may under limitations 
enter into currency. 
For all, a basis of sound money indispensable. 

The Mischievous Abuses of Credit 322 

1. Too freely granted. 2. Used for wild speculation. 3. 
Extravagance of debtors. 4. Confidence operations. 5. 
Over-estimate of assets. 6. Betrayal of trusts. 7. Ex- 
cessive issue of currency. 

Consequent Mischiefs 326 

a. Fluctuating prices, 6. Enhanced risks of business. 
c. Trade made a game of chance, d. Moral sense 
deadened, e. Force of contracts relaxed. 



CHAPTEE XXIL 
Banks and Currency. 

Banks, Agents of Credit 330 

Three Offices of Banks 330 

1. To collect and hold money in safe keeping. 2. To loan 
and discount money. 3. To issue circulating notes. 

Facts from the History of Banks 333 

Bank of Venice — of Genoa — of Amsterdam and Hamburg 
— of England — Scotch Banking System — Bank of France. 

Banks in the United States 337 

State Banks — The Suffolk bank system — Safety-fund 
banks— Free banking — Two United States banks — The 
National bank system — Private banks — Savings banks. 

The Liabilities and Resources of our National Banks 343 

Liabilities. 1. Capital Stock. 2. Circulation. 3. Deposits. 
4. Balances due other banks. 5. Reserves. 6. Undivided 
Profits. 7. Miscellaneous liabilities. 

JResources. 1. Loans. 2. U. S. bonds deposited for cir- 
culation. 3. Bonds and stocks held as investments. 4. 
Balances due from other banks. 5. Real estate. 6. Cash 
items. 7. Currency. 8. Funds to redeem circulation. 9. 
Miscellaneous items. 



COlsTTEN^TS. xix 

PAGE 

The Sources of Profits of National Banks 344 

1. Interest — a. On U. S. bonds, h. On circulating notes. 
c. On remaining capital, d. On deposits loaned. 

2, Premiums on exchange. 3. Commissions for collec- 
tions. 

Currency — Four Kinds 345 

1. Value currency. 2. Mercantile currency. 3. Mixed 
currency — Distinction between ultimate redemption and 
immediate convertibility — Precautionary measures of 
Bank of England. 4. Credit currency — transfers without 
paying debts — Cannot go abroad — Keeps prices fluctuat- 
ing — Lays a direct tax on the people — Is a forced loan — 
Disturbs commerce and industry — Demoralizes a people. 

CHAPTER XXIII. 
•^Protection or Free-Trade. 

Definition of the two terms 355 

The Presumption in favor of Free-Trade 356 

1. Freedom a general economic law. 2. The right of prop- 
erty implies freedom. 3. Social instincts prompt free ex- 
change. 4. Free-trade favors peace of nations. 5. Nature's 
varied gifts designed for one human family. 

Arguments for Protection 359 

The general argument — Protection a necessity to secure 
varied industry — 

a. Every country has varied resources, b. Also diversity of 
talent, c. Men have diverse wants, d. Varied industry 
makes a home-market, e. Promotes social and moral 
advancement. 

Foreign Competition Crushes out Home Production 361 

a. Superior advantages. 6. Control of the market, c. 
The course of English manufacturers, d. England re- 
pudiates protection after reaping its advantages, e. A 
new manufacture a costly experiment. /. Protective 
tariffs temporary, g. Competition reduces wages of 
labor. 

2. Protection a means of National Independence 363 

3. It makes a home-market for agricultural products 364 

4. Favors Division of Labor and Skill 364 



XX CONTENTS. 

PAUB 

5. A means of Retaliation » 365 

6. Sanctioned by usage and wise men 365 

Free-traders value diversified industry, but deny that Protection 

is necessary to secure it . . 366 

a. Industry lias a natural growth, h. Free competition 
favors it. c. Capital and Labor as they increase, de- 
velop all resources, d. Personal interest for accumula- 
tion a safe guide, e. Reactions follow unnatural forcing. 
/. Foreign products purchased with fruits of most ef- 
fective labor, g. Industry naturally developed able to 
defy competition, h. A forced industry sickly and un- 
certain. 

What Protection cannot do 369 

No Industry once protected ready to go alone 371 

" Pauper labor," a bugbear 372 

Protection favors isolation, not true independence 378 

A home market forms itself with increasing wealth and popula- 
tion 374 

Retaliation may work both ways 376 

False notions originated and sustain protection 376 

Positive objections to the Protective system 378 

1. Fosters antagonism of industries. 2. By unnatural stim- 
ulus leads to over-production. 3. A tax on the people, 
without benefit to the government. 4. It is an unstable 
policy. 5. Demoralizes legislation. 6. Corrupts public 
morals and the public service. 



Historical results 

Free-trade between the States of our Union a successful 
experiment. 

Roscher quoted « 384 

CHAPTER XXIY. 
Rail^way Corporations. 

Benefits of Railways, words of Judge Paine 386 

Nature of a Railway Corporation 887 

1. A feature of the State. 2. An agent of the State. 3. 

A practical monopoly. 



CONTENTS. Xxi 

PAGE 

Relations of Railway Corporations to general industry 390 

1. They give the last addition of value. 2. Enlarge the 
market. 3. Quicken exchanges. 4. Depend on produc- 
tiveness of industry. 5. As monopolies, may diminish re- 
turns of industry. 

Administration of Railway Corporations 391 

A few managers wield great power. 

Abuses in the management 392 

Reckless expenses and credit — Interests of stockholders 
sacrificed by leases and combinations — Credit Mobilier — 
Stock speculations — Watering stock — Ruinous competi- 
tions — Carrying legislation by bribery. 

Statesmanship and public sentiment must correct evils 394 



CHAPTER XXV. 
Commercial Crises. 

Speculation the prime cause 396 

A Panic the turning point 397 

The Gold Bank and Trust Company of San Francisco — 
The Tea speculation of 1839 in England — Tobacco-raisers 
on the Connecticut River — Western land speculations and 
the crisis of 1837. 

The practical problem of commercial crises 40^ 

Economic principles to be regarded. 

The world-wide financial derangement from 1875-8 » 403 

Causes, 1. Increased production by labor-saving machin- 
ery. 2. Expansion of credit necessary to large establish- 
ments. 3. Extravagant ways of business and of living. 
4. Increased expense of wars and expanded national 
credit. 5. The United States war of the Rebellion and 
Franco German war. 



POLITICAL ECONOMY. 



CHAPTER I. 

PEELIMINARY OBSEEYATIONS. 

Origin of the Name. — Mankind are constituted 
mutually dependent and cooperative. Hence by neces- 
Bity, they live in Society and the highest good of the 
individual is identified with a common good. The first 
and simplest form of society is the Family y living under 
common house-roof. Thus, very naturally, the Greeks, 
whose inquisitive minds pried into the philosophy of all 
things, grouped the elementary principles of men's social 
life under the term oiKwofiia, — economy, the law of the house. 
They used the term with reference mainly to a thrifty 
provision of comforts for the well-being of the members 
*f the household. 

As individuals make up families, so families make up 
vui?.es and states. The elementary principles of the 
broader association are essentially the same with those of 
the primary societies. Hence the term Political Econ 
omy, applied to the community, in a body politic, as 
domestic economy is to the household. Aristotle first used 
the term with a signification vague and general. It has 
come now to have a technical meaning. Usage has re- 
cognized its intrinsic fitness to indicate that department 
of truth which is concerned with the well-being of men in 



4 POLITICAL ECOIirOMY. 

society as affected by wealth. It is not likely to give placM 
to any substitute. The adjective ^^ Political" meani 
Bimply pertaining to the city or state. It implies nothing 
oi politics in the ordinary sense of that word. 

Its Definition. — Politiccd Economy is that branch oj 
Social Science which treats of the production a7id applica • 
lion of wealth to the well-being of meri in society. It is a 
branch of true science. 

By Science, as the word is here used, we mean a Sys- 
tematic arrangement of the laivs which God has established, 
80 far as they have been discovered, of any department of 
human knoivledgc. It is obvious, upon the slightest reflec- 
tion, that the Creator has subjected the accumulation of 
the blessings of this life to some determinate laws. Every 
one, for instance, knows that no man can grow rich, with- 
out industry and frugality. Political Economy, 
therefore, is a systematic arrangement of the laws by 
which, under our present constitution, the relations of 
man, whether individual or social, to the objects of his 
desire, are governed. Man's* hand joins with the hand of 
fellow-man and with the powers of nature to produce 
wealth. Hence the processes and the legitimate end of 
the science imply a combination of the laws of the material 
world with the laws of man's social nature. 

Fundamental Laws. — The science is based on foui 
fundamental laws. 

1. God has made man a creature of desires and con* 
Btituted the material world in which he lives with qualities 
and powers available for the gratification of those desires. 
As men advance in individual and social ievelopment, 
their desires are multiplied. At the same time by their 
increased intelligence and ingenuity, the resources of 
nature are unfolded in lull proportion. Desire stimu^ 



PSELIMIlfARY OBSERVATIONS. 6 

t&tes invention and sncoessful invention wakes new desires. 
TTiere is no assignable li7nit to the development of eithef 
men's desires or nature^ s resources. 

2. For desires above the very simplest wants of the 
animal, man must, hy Lahor, force nature to yield her hid- 
den resources. Things most essential to mere animal life 
are furnished by nature in available form, demanding, on 
the part of men, only such exeririon as is necessary to take 
and use them. We can hardly avoid the light, or refrain 
from breatliing the air. Water bubbles up from the ground 
to quench thirst, and the spontaneous vegetation of the 
earth offers something already prepared for food. But for 
those desires which unfold with the exercise of our rational 
faculties, from anticipations of the future, from the con- 
ception of possible enjoyments, from the choice of a free- 
will making selection according to taste, from the love of 
admiration, from the love of power, from the spirit of 
benevolence — for these, nature hides the means of gratifi- 
cation and yields them only to the toil of contriving mind 
and muscular force. The co7ive7iiences and comforts oj 
x,ivilized life are the fruits of human Labor. 

3. Tlie exertion of labor establishes a right of Property 
in the fruits of labor, and the idea of exclusive possession is 
& necessary consequence. Personal rights begin with the 
consciousness of inditidual being and of individual achieve- 
ment ; and the idea of labor expended in the production 
underlies directly or indirectly the property-right to any- 
thing. Originally the thing produced belongs to him who 
produced it by an intuitive conception of right, and the act 
^f aj'propriation is as instinctive as the act of breathing, 

4. With the right cf property, comes also the possibility 
and the right of Exchange, or the mutual transfer of 
possessions between man and man, and between different 
communities and countries. One may do what he will with 
his own. 'The transfer in good faith and perpetuity of an 



8 POLITICAL ECOlfOMT. 

object gained by labor constitutes a title to possession ai 
well grounded as that which rests immediately on labor 
performed. We are brought thus into the sphere of man's 
social life with its manifold and complicated relations, fiom 
which proceed the most powerful incitements to stimulate 
desire, to nerve up labor, to maintain rights and to multi- 
ply and distribute the innumerable elements of wealth. 

Materials of the Science. — The materials of thia 
branch of science lie fixed in the nature of man, and of 
the physical world which he controls, and in the structure 
Df human society. They are drawn out by the study of 
men^s wants, the investigation of nature^s resources, the 
study of statistics of human invention and industry, and 
^he defini7ig of principles for common and reciprocal agencies 
in social relations. This science combines elements of 
both physical and metaphysical philosophy. 1 1 diif ers from 
the purely physical sciences in that the phenomena of 
\iunan volitiofi are continually involved in the system. It 
iifEers from the branches of intellectual and moral science 
jn that it contemplates all soul-phenomena with reference 
mainly to certain physical results. Its leading propositions 
must often express tendencies rather than actual facts. Its 
conclusions must rest often on the balance of probabilities, 
rather than on pure and perfect demonstrations. 

The Motive to Effort. — Political Economy regards 
self-interest as a universal motive of human action, and it 
studies the mutual relations and intercourse of men as gov- 
erned by that motive. It assumes that labor is irksoins^ 
and that every body desires the utmost possible gratifica- 
tion with the least possible exertion. Its great problem is 
to find a common interest which, as the resultant of indi- 
vidual self-interest) })roperly combines and regulates the 
separate forces. Its principles ooint to the golden rule oj 



PBELIMLt^AEY OBSERVATIONS. 7 

Christ as the formula by wliich the problem must be fiuallj 
solved. 

Conflicting Desires. — Three desires inherent in 
every man contend for the mastery. 

1. Desire of Ease, 

2. Desire of Present Gratification, 

3. Desire of Means to ensure Future Gratification, 
The resultant of these conflicting desires measures fo: 

any one his interest in the accumulation of wealth. Tha 
degree in which the other two are held subordinate to the 
ihird determines the productive activity of a community* 



CHAPTER II. 

DEFINITIONS AND DIVISIONS. 

Wealth. — This is the central term in Political Econ 
omy. The word is commonly used loosely and vaguely. 

A clear and strict definition of it is imjoortant for a right 
understanding of this science. 

The generic term Wealth emhraces all useful things tvhich 
can be appropriated and exchanged. This definition com- 
bines two qualities, first, Utility or fitness to gratify desire ; 
second, Approprialility, or fitness to be seized and held in 
exclusive possession. Whatever has both these qualities in 
any degree, is a part of wealth. Whatever lacks either is 
excluded from wealth. Perhaps we cannot say of anything 
that it has absolutely no utility, for God has made nothing 
in vain. But in their place, relatively to gratifying anj 
desire of man, the sand on the sea shore, the crags of th( 
mountain-top, the debris of a demolished building are 
without utility. No accumulation of such things can be- 
come wealth. On the other hand, such things as the air 
and the sunlight have the very highest utility, insomuch 
that they are essential to the very life of every man, but 
their universal diffusion precludes their being appropriated 
as the exclusive possession of any. Therefore they form 
DO part of wealth. 

Errors respecting Wealth. — 1. It is an error to 
Identify wealth with money. Money, though it measures 
all thiEgs, and is a medium of exchange for all, itself forma 



DEPINITIOJ^S AN^D DlVISIOi^^S. f 

but a small part of the sum of wealth. It is desirable not 
for its own sake but for the wealth in other forms which 
it can purchase. The so-called ** Mercantile System" 
which long ruled the policy of nations with mischievous 
effects, rested upon this radical error. Its doctrine was 
that whatever tends to heap up money or bullion in a 
country adds to its wealth, and whatever sends the precioua 
metals out of a country impoverishes it. Hence commerce 
was conducted with a sole view to bringing gold and silver 
into a country. That system is now exploded, but the 
false idea still lingers in many minds to confuse and com- 
plicate problems of both private and public finance. 

2. It is an error to class as wealth liuman heings or their 
native capacities or acquired abilities. Physical strength, 
intellectual genius, moral character, professional skill are 
possessions of highest worth. But they are an inseparable 
part of one's own being. They cannot be directly trans- 
ferred from one to another. They are poiuers for the pro- 
iuction of wealth, but only the pjvducts which come from 
their exercise can be counted into the sum of wealth. 

3. It is an error to regard mortgages, bonds, stocks and 
the like as a part of general wealth. These things only 
indicate a title to possession, a mode in which some real 
wealth is distributed. The mortgage which one holds 
simply divides the farm on which it rests between the 
nominal owner and his neighbor. The wealth is in the 
farm. It is not increased a whit by the mortgage itself. 
A bond of the United States for one thousand dollars, only 
gives its holder a lien on the solid wealth of the country 
for that amount, to be drawn some day from the tax-payers 
A. B.'s certificate for fifty shares of stock in a railroad, 
means that he is the owner of that proportion of the land, 
the rails, the engines, the cars and whatever else constitutes 
the property of that corporation. Its division into one 
hundred thousand shares distributed to one thousand dif- 



10 POLITICAL ECONOMY, 

ferent persons makes no more of that wealth than if i 
Vanderbilt owned it all. In the estimate of one's individ- 
ual property, he may count in all that he owns of this kind* 
The fact to be noted is that these do not add to the sum 
of general wealth, but only show how some portion oi 
wealth is distributed. They are Symiols not Substance, 
Many a mischievous illusion comes from mistaken views 
of these things. 

4. It is an error to exclude from the category of wealth 
etwrything luhicli is not tangible and durable. The song of a 
Jenny Lind and the eloquence of a Wendell Philips impart 
a high gratification which can be appropriated by those 
who gain admittance to the hall where they are produced. 
The song is produced by labor applied to the air, which 
develops hidden properties of sound, viz., tone, melody 
rhythm, which meet a human desire. What more can be 
Baid of a coat made by a tailor ? The two products diffei 
only in that the coat gives a moderate pleasure, prolongecj 
for months, and may be laid up in store ; while the song 
gives a keen, it may be ecstatic enjoyment for an hour, 
only the cherished memory of which can be retained. It 
is wealth, impalpable, evanescent, consumed as soon as pro- 
duced. It meets our definition, though it cannot be stored 
or counted. 

Sources of Wealth. — The original source of wealth 
is the bounty of God in nature, Man can neither create a 
particle of matter nor impart to it any new property. He 
can only develop and modify what God has made, which is 
free to all, restricted only when actually appropriated by 
labor. Over the whole material creation, he is set in full 
authority to search, to subdue, to control and to use. 

The secondary source of wealth is human labor exerted 
ti bring forth the bounty of nature in form, in time, in 
placCf suited to meet the desires of men. This gives ihe 



DEFIKITIOIS-8 AND DIVISIONS. 11 

rigbt of possession which contiols both the gift of natur« 
and the added utility imported by labor. 

How Wealth is increased.— Wealth in every form 
liust be perpetually reneived. It is maintained only bj? 
J constant process of reproduction, i. e., of consumption foj 
reproduction. It grows only as that which is produced 
exceeds that which is consumed in capacity to gratify 
desire. Mill says, '' The greater part of England's wealth 
to-day was produced within the last twelve-month." To 
accumulate wealth, labor must go beyond what is essential 
to meet immediate necessities ; and the check of fore- 
thought and abstinence must be laid on the immediate 
consumption of the products of labor. Hence industry and 
frugality are indispensable conditions of the increase o 
wealth. These are characteristics which distinguish civil- 
ized from savage men, and thus wealth becomes a sign oi 
Civilization, 

Value. — In ordinary usage, this word often expresses 
only a vague idea that the thing to which it is applied is 
desirable. But as a technical term in Political Economy, 
it holds a place of highest importance. Ambiguity in its 
nse causes much confusion of ideas on economical problems. 
Hence the necessity of a strict definition to be strictly 
adhered to. Formerly a distinction was made between 
Intrinsic Value and Exchangeable Value. But all that 
was meant by intrinsic value is better expressed by the 
word Utility, and this is now quite generally adopted in its 
■»hice, leaving value with one distinct signification which 
nay be stated thus. 

Value is Purchasing Power, or that quality in an object 
which gives it potuer to co7nma?id other objects in exchange* 
It supposes always a comparison of two objects in vie"^ 
of an exchange, actual or contemplated. It is not likfc 



12 POLITICAL ECOis'OMY. 

weight, an absolute, inherent quality of a substance. li 
cannot be discovered by examining an article by itself. 
Valne is always a relative term. The measure of it pertain- 
ing to anything can, be expressed only by naming some 
other thing for which it can be exchare'ed— Ine quid pro 
\uo. Thus the value of a hat may be set down at fou« 
bushels of wheat or a quarter of an ounce of gold, oo- 
cause it will command so much of one or the other in 
exchange. 

Value in Distinction from Price, Value is the power 
to command commodities generally. Price is that power 
with reference to a single article, viz., Money. Money is the 
general standard of value, and so value may be indicated 
by a comparison of prices, but it is important to observe 
the distinction between the two terms. The value of a 
specific commodity may rise or fall. Thus the hat which 
brought four bushels of wheat last year, may bring but 
ihree this year. To discover which of the two has changed 
ai value, the cause affecting one or the other must be in- 
quired into. It may be that a failure of crops has en- 
hanced the value of wheat, or that some new invention, 
cheapening the process of manufacturing, has lessened the 
value of the hat. But there can he no general rise or 
fall of all values. There may be however, a general 
rise or fall of prices in consequence of some cause, like 
an expansion or contraction of paper currency, ^^hich 
affects money, the one object with which all things are 
compared. 

Value in Distinction from Utility. — Utility is simplj 
mlaptedness to satisfy a want, or to gratify a desire. 
Things that have value, have always utility in this sense oi 
capacity to gratify desire, without reference to the quality 
of the desire as right or wrong, wise or foolish. The powe.* 
of a commodity in exchange is measured by its desirable 
ness. But some things of the very highest utility have nr 



DEFINITIOlfS AKD DIVISIOlfS. 13 

value f as for instance air, light, water. We cannot live 
without them, yet they have no value, no purchasing 
power, because the supply is so large and so free that who- 
ever will may take to his satisfaction without labor. They 
coii nothing, and they cannot ordinarily be appropriate" 
'm exclusive possession. 

The Limits of Value. — With these distinctions in 
mind, it is plain that value may be resolved into two 
elements, viz. 

1. Utility = desirableness for gratification. 

2. Cost = difficulty of attainment, measured by 
the amount* of labor necessary to secure the 
object. 

By these two elements the limits of value are defined. 
The Maximum limit of value in any commodity is defineii 
oyits Utility, That is, its purchasing power is determined 
by the intensity of desire for its possession by the parties 
to the exchange. This will depend on a variety of circum- 
stances, such as the taste of individuals, the fashion of the 
iay, the emergency of the hour, etc. The value may and 
often does fall short of this, but can never go beyond it. 
We seldom give for a loaf of bread an equivalent whict 
expresses the measure of its utility to support life. But 
under the pressure of famine its value is crowded up close 
to this limit. When a man offers ten thousand bushels of 
wheat for a choice diamond, he expresses only the intensity 
of his desire for the glittering gem. 

The Minimum Limit of Value in any article, for any 
long time, is defined by its Cost, that is, the exponent Oj 
the labor either actually expended in its production, or 
whi3h muBt be expended for its reproduction. When the 
market value of a commodity falls permanently below its 
cost, its production is suspended. If however, there is 
good reason to believe that its value will rise again, it may 



14 POLIIiOAL ECOIfOMY. 

be good economy to tide over the temporary depresgion h^ 
exchanging at a rate less than cost. A diamond of great 
beauty may become the property of one, at the cost oaly 
of the labor of picking np what, by good hick, he chanced 
to find. Its value is however, estimated by the probable 

abor involved in a continuous search to obtain its equal. 

u the last analysis, the comparison is of labor with labor, 
and it is true as has been said, that '^ service for service 
rather than commodity for commodity is the rule of value 
And the law of exchange." 

The Law of Supply and Demand. — Between 
these extreme limits of value, there is room for a consider- 
able variation which is determined by the law of Supply 
and Demand, Concisely stated, this law is that, with cost 
as its stable foundation, value increases directly as the de* 
maud and inversely as the supply. The degree of variation 
ihus caused depends on several circumstances. The neces- 
iaries of life are more affected than luxuries, by diminished 
gupi-dy. Excessive supply reduces the value of perishable 
articles such as fruits and fish, far more than that of 
jnduring articles like iron and cloth. Commodities that 
mn be quickly produced to meet a special demand will fluc- 
tuate but alightly in value. The freaks of fashion subject 
fancy goods to far greater variation than staple goods. 
Reduced value extends demand, and enhanced value re* 
fitricts demand quite beyond the mere ratio of the change. 
Thus a thousand persons will use cotton cloth at ten 
ocnts a yard, where a hundred would use it at fifty cents. 

l^onopolies arti6cially limit supply for the purpose 
>f increasing value. Thus it is said that at one time the 
Dutch, who had a monopoly of the trade in pepper, actually 
iestroyed j)art of an extraordinary ciop, rachcr than per- 
mit the market- value to be reduced. When left free from 



DEFIKITI02S"S k:SI) DlVISIOlfS. 15 

artificial interference, demaad and supply rusli towards an 
equilibrkmi ; and the condition of stable equilibrium is 
that things exchange for each other according to the cost 
of pioducfcion, or as some express it, according to their 
natural value. 

The Practical End contemplated in Political Econ- 
omy is i\m Production of wealtli, in the largest measure 
and of the Mgliest value, and its application to the fullest 
and most general Satisfaction of men's desires. 

Divisions. — Logically, the science resolves itself into 
two leading and two subordinate divisions. The two lead 
mg divisions are Peoduction" and CoiS'SUMPTiOiq'. 

Production is the act by which we confer a particular 
value upon any object, or by which we give to an object ita 
adaptedness to gratify desire. We can neither create nor 
annihilate any thing. All that we can do, is, to modify 
what ' iieady exis^ i. When we so modify any thing that it 
is capable of gratifying a desire which before, it was not car 
pable'of gratifying, our so doing is called ])roductioti. Un- 
der this division are presented the processes and laws which 
relate to the development of wealth by the creation of Value. 

Consumption is the act of destroying wealth in it*» 
use for the gratihcation of desire. The destruction of 
wealth in one form, for the sake of bringing out wealth in 
anotlier form of greater utility and higher value, belonga 
to tlie department of Production. The destruction of 
wcjilth without yielding either gratification or increased 
value, as when goods are swept away by flood or consumed 
oy fire, is of itself, only a calamitous interference with the 
laws of our science. Under this second division we study 
only the laius luMcli govern the economical use of wealth to 
neet wants and impart gratificutions. 

Ail production is for consumption. Yet consumpti3n 
is antagonistical to production, as it uses up the moans o- 
production. Yet, again, a sound and healthy consumption 



J 6 POLITICAL ECOIS^OMY. 

is a stimulas to production , and conversely, prolj table 
production increases consumption as it multiplies and 
cheapens the means of gratification. 

Between these two leading divisions come in the twd 
■nho* dinate divisions. Distribution and Excha:n^ge. 

iVistribution. — The productive effect of human ac» 
tivitv is greatly increased by union of effort and division 
of laLur. When the product is realized and the results are 
to be divided, some equitable law is to be adopted in the 
distrit.jtion. Under Distribution therefore, are embraced 
the pj jcesses and laws which relate to the division of the 
^esuli > among the parties who imite in producing values. 

E ^change. — The mode of every man's industry is de- 
cided by his individual tastes, capacities and circumstances. 
It is commonly, however, confined to the creation of one 
Kind of product, inasmuch as it is thus vastly more avail- 
able His desires, on the other hand, are as innumerable 
as tie objects created to gratify them. He creates but one 
valne and he wants a thousand. Hence, he can be gratified 
oy means of no less than nine hundred and ninety-nine 
bxchanges. He thus parts witli various portions of the 
value which he has created, for the sake of obtaining values 
which others have created. Hence the necessity of uni 
fersal and ceaseless exchange. Under Exchange are brouglit 
to view the processes and laios which relate to the mutual 
transfer of values. 

The channels through which Production, the means, 
fanies its results on to Consumption, the end, run through 
the domains of Distribution and Exchange. The processes 
and laws of Production and Consumption are simple and 
easily apprehended. The difficult problems of Political 
Economy pertain almost entirely to the matters of Dis- 
tribution and Exchange. 

These four divisions will be treated of in the order in 
which they have been here presented. 



CHAPTER in. 

FIRST DIVISION.— PEODUCTION. 

Ii is obvious that when man was first created, there 
existed nothing but this earth, with its various substan- 
ces, their qualities and relations ; and man, with his vari 
ous physical, intellectual, and moral powers. The dif- 
ference between the present state of man and of the 
universe around him, and the original state, consists in 
this : that the qualities and relations of things have now 
been discovered, and rendered available for the service of 
man ; and the intellect of man has been cultivated, and 
his skill improved, so that he is able, more successfully, to 
avail himself of these qualities and relations. And it is 
also obvious, that this change in the external world has 
been produced by the physical and intellectual faculties of 
man ; that is, by human industry. The whole wealth of 
the wor^d has been created by the union of human industry 
with the materials which God had originally spread around 
us. In simplest statement, we say then, 

Wealth is produced by the apjjUcation of labor td natu '•nl 
objects, 

{a) So7ne labor is necessary to find and appropriate most 
of those objects which nature brings forth spontaueously 
in a form to gratify desire. 

(b) In most cases further labor is requisite to bring 
natural objects into a condition fit for use. Fig leaves 
must be sewed together. Grame and fish must be divided, 
cleansed and cooked. Wheat must be ground, and the 



18 PKODUCTION. 

flour kneaded and baked, and so on up to tlie transforma- 
tion of sand and sea-weed, — silex and alkali, into glass. 

(c) But most especially for the advanced processes ol 
production essential to meet the wants" of civilized society, 
^ome accumulation of the products of former labor is rcquu 
lite to iegij. with. Materials must be gathered, instrumeula 
must be prepared and provision must be made for the sub 
sistence of the laborer during the process of production. 
To these products of former labor, as concerned in pro- 
duction, the name Capital is applied. 

The Production of wealth thus involves the combina- 
tion of Labor with Capital, and this branch of the subject 
may be best studied under the threefold sub-division Labol 
—Capital— and the Co-operation of these two forc^i 






CHAPTER IV. 

LABOR, 

L. — Labor is the voluntary exertion of human 
beings put forth to attain some desired ohject. 

AVe say " human leings.''^ for the toil of beasts is but 
the agency of an instrument, reckoned a part of capital. 
We say ** voluntary'^ exertion, for, in the view of Political 
Economy, the involuntary work of slaves is like the toil c 
oxen, the mere use of a thing owned as a part of one's 
capital. We say also ''for a desired object,''' for this dis- 
tinguishes labor from play. In play, we are satisfied with 
the mere exercise of our faculties. In labor, we seek a 
further end — a result which comes as an abiding reward 
for the effort. The exertion put forth in play is often 
more severe than that of labor, as we see on the ball-ground 
or in the rowing match ; but the distinction is always clear 
The game of a hired base-ball club is never, in any propel 
sense, play. 

Labor a Measure of Value. — Labor is always irlc-* 
some ]iut forth o-nly for the sake of the object to be attained 
1 n any case, therefore, when desire is awakened for a cer- 
tain object the question arises. Is the gratification worth 
thi labor necessary to secure it ? When the desire is strong 
eiicugh to overcome the man's inertia, or love of ease, he 
will put forth the necessary labor and that labor standa 
ever, an exponent of hi* estimate of the object. He will 
part with that object only for something else which has 
cost at least an equal amount of labor. Every man esti- 



to PBODUCTIOl?-. 

mates the products of his labor by the same rule. Tims, 
in all exchanges, for the comparison of value or purchasing 
power, the first question is, how much labor is in^ ^Ived— 
what is the cost of the objects o^ered for exchange ? Laboi 
thus becomes not the sole elemeiit, but always a fundamon- 
ial and essential element in the measure of value. 

Kinds of Labor. — The processes of production give 
Ecope for the exercise of all the faculties of man. So, le- 
Bolving the compound of human nature into its two constit- 
uents, body and mind, we recognize two kinds of labor. 

1. Physical labor in which muscular exertion is the 
chief thing. 

2. Mental labor which engages chiefly the faculties oi 
the mind. 

We say '* chief and ''chiefly,^' because in reality aL 
human industry combines some physical and some mental 
effort — taxes both muscles and brain. The dullest laborer 
must give some thought to the movement of his hands 
and the profoundest thinker must task some of his muscles 
in the labor of writing or dictation to bring before the 
world the products of his brain-work. In general, manual 
labor is profitable in proportion as mental effort in the 
way of skill or contrivance, is blended with it. And minds 
tasked in study to unfold the secret constitution of nature, 
continually open the way for new industries, and indicate 
new methods for the multiplication of wealth. These tuo 
kinds of labor are very closely joined in the active industry 
of the world. Yet the distinction is obvious and impor- 
iant. Tc bring it oat more fully, we need carefully to 
•onsider : 

L What Physical Labor does. — All the powei 

there is in these bodies of ilesh, comes from the capacity 
j)f living muscle to contract and expand. It is simpij 



PHYSICAL LABOR. 21 

power i: produce motion. The muscles are strung with 
nerves through which the will directs their motions. All 
that man does or can do with matter is by working liia 
muscles, to bring a pressure to bear on objects to set them 
IQ motion, or to check or modify, or altogether arrest their 
!ii3tion, so as to effect a desired result. Physical labor only 
moves things. But the power to do this gives man a com 
mand, reaching beyond any definable limit, over the forces 
of nature which are the effective agents of production. 
Man drops a seed into the ground. Then the vital force 
hidden in the seed, quickened by moisture and heat and 
nourished by chemical elements in the soil, brings forth 
Buccessively, root and blade and leaf and flower and fruit. 
Man brings coal to the furnace and applies to it a spark of 
fire. Then a hid ien force of nature in the process of com- 
bustion turns the carbon into heat. Man may lay on the 
pile, ore dug from the earth, bu t it is nature's force, which by 
the action of heat makes the iron flow. Man's muscles lift 
the hammer, but nature's forces, gravitation and density 
on the one hand, and tenacity and malleability on the 
other make the blow effective to shape the iron. Thus, 
through all the processes of production, man moves things 
into such relations that the forces of nature can act to 
achieve the results he aims at. He can do nothing alone. 
Ordinarily, nature will do but little to his purpose without 
his effort to move things into some sort of adjustment to 
her laws. We are brought thus to consider next : 

2. What Mental Labor does directly for the pr^^ 

■iuction of wealth. For the wisest and most effective appli- 
cation of physical labor touching material objects just tc- 
move them, men must know as mucli as possible of the 
properties of matter and of the forces of nature by which 
those properties can be developed and modified. Such 
knowledge comes through labor of the mind, searching out 



22 PBODUCTION'. 

the constitution and tlie laws of matter. After this knowl- 
edge is gained, Imman minds must be further tasked to 
leyise means and instruments for applying it in efforts for 
iihe increase of wealth. Still further, when the elements 
and laws of nature are understood, and instruments are 
made and adjusted to them, the mind must be exercised in 
close attention to superintend the operations, so as to hold 
ail instruments and their movements true to the principles 
of their construction, and to the end aimed at. By habit- 
ual exercise, one acquires quickness of perception, and 
readiness and precision in manipulation, that is skill, which 
is, in essence, a power of mind more than of muscle. AYo 
define then three distinct forms in which mental labor is 
concerned in the production of wealth. 

1. TJie labor of Investigation and Discovery, through 
which the properties and laws of nature are made known. 
Newton labored in this department, when he discoverer 
the laws of gravitation, of optics, and of the motions o^ 
the heavenly bodies ; Franklin, when he discovered the 
laws of electricity ; and Sir llumphrey Davy, when he 
discovered the alkaline bases, and the laws of their combi- 
nation. The labor of each of these men was also of the 
same kind, when they made known these laws to the pub- 
lic. The labor of students of science in all departments, 
belongs to this category. 

2. TJie labor of Invention, employed in devising insiru^ 
me7its of production adjusted to the discovered principloa 
and properties of nature. Newton j^erformed this labor 
when he invented the telescope ; Had ley when by mcana 
of the quadrant, he applied the laws of light to the moas- 
arement of angles ; Watt when he devised an engine to 
control and utilize the expansive force of steam ; Arkwright 
when he invented the spinning-jenny ; Morse when, by 
contriving the telegraphic register, he bound electricity to 
do man's bidding, and Daguerre when he found a way to 



MENTAL LABOR. 23 

ftpply the actinic properties of light, and set tfte sun hini' 
self to making pictures for ns. The matliematician in hib 
study, puzzling his brain with problems of number and 
quantity, lines and angles, seems far removed from the 
practical work of life. Yet the fruit of his labor enters 
into all effective machinery, in a way to multiply comfort! 
for men, beyond all computation. 

3. The labor of shillful Ooersigld and Superintendence. 
In its lowest form, this is joined immediately with the mus- 
cular action of physical labor, as in the case of the me- 
chanic using simple tools to work wood or metal, accord- 
ing to its nature, for a definite purpose. In higher forms 
it watches and guides the running of a complicated engine, 
or presides over a department of labor to combine the pro- 
ducts of many working hands and minds, or manages the 
business of a great manufactory, the observing eye and 
governing will by which manifold processes are made to 
coalesce for the one end of producing things that will grat- 
ify men's desires. Through the whole range, iiitelligence 
and judgment are exercised to regulate the motions of 
physical labor, by means of inventions, and according to 
discoveries previously made. 

These three forms of mental labor continually run into 
each other, as Sir Humphrey Davy discovered the nature 
of choke-damp in mines, and invented the safety-lamp, or 
as Sir Eichard Arkwright, a thoughtful spinner, invented 
the spinning machinery now in common use. It is obvious 
tlierefore, that the wide diUusion of knowledge, and tho 
culture of habits of close observation, tends directly to in- 
srease the effectiveness of labor. In the actual progress 
of industry, the order of these forms of labor is commonly 
reversed. Men begin with simple muscular efforts. 
Thinking mind attending these efforts, invents means of 
easing labor or of increasing its effectiveness. The effort 
9f invention leads to the discovery of properties and laws 



24 PBODUCTIOif. 

which, in turn, wakens new interest and leads to new inven- 
tions. The spring of advancing civilization is thus th^ 
activity of the human mind directed to the production ol 
wealth. 

Labor indirectly instrumental in Production. — Undei 
this head, we refer to that labor, chiefly mental, which has 
to do, not with the immediate production of material 
objects, but with the general conditions most favorable to 
successful industry of whatever kind. Health, intelligence, 
cheerfulness, integrity, social order, security to property, 
good government, refined manners, high-toned moral and 
religious sentiments — all these are conditions on which de- 
pend, in no small degree, the results of labor for the actua 
production of wealth. This labor is applied immediately 
tG human leings, to rear them so as to keep up the supply 
of laborers, and to give them physical vigor and spiritual 
capacitv and energy ; and also to human society, to main- 
tain order and security, and a tone of sentiment most 
favorable to cheerful toil and to good-will and happiness 
in all the associations of life. To this class of labor are 
referred the mother'' s unwearying care and effort in nurs- 
ing and training children, the services of the jphysiciant 
who studies and applies to individuals and to coinmunitiea 
the laws of health, and the labors of the teacher, which de- 
velop the mental poivers of the young and diffuse in a com' 
munity intelligence which quickens and guides all industry, 
Here too, belong the busy brain- work of the lawyer, who 
labors to define and maintain rights and obligations as they 
gpring up in the intercourse of men with one another, 
under the rule of civil law ; and that of the minister of 
religion who plies the truths and precepts of "the higher 
law" of God, to form good consciences and improve the 
public moral sense ; and that also of legislators and officers 
of gover7imentj on whose ordinances and administration ol 
aUairg, the stability of the whole structure of society 



PKODUr^nVE AND UNPRODUCTIVE LABOR. 25 

depends. It is quite obvious that all these labors, though 
they do not directly bring forth material product?, never- 
theless encer into the general productive industry of a peo- 
ple^ and are as essential to the best results of its processes aa 
the manual labor of the farmer or the blacksmith. The 
support and the rewards of this kind of labor must come 
from the wealth produced. And it is wise economy to 
make ample provision for these services to be rendered by 
persons who make them their study and piofession. 

Labor as Productive and Unproductive. — Many writers 
on political economy make much of this distinction. Mr. 
Mill understands by " productive labor, only those kinds 
of exertion which produce utilities embodied in material 
objects," and by unproductive labor, that " which does noi 
terminate in the creation of material wealth." We are 
however disposed to discard this distinction and to substi* 
tute for it that of labor as directly or mdirectly concerned 
.n production, according to the views just presented. In 
his own presentation of the matter, Mill's definition breaks 
down when he tries to include in productive labor, the 
labor of officers of government, recognizing it to be " in- 
dispensable to the prosperity of industry." The same thing 
certainly must be said of all that has been referred to as 
* * labor indirectly instrumental in prod uction. '' Whatever 
efforts tend to improve the condition of men for the work 
they undertake, or to improve the condition of society for 
securing to men the reward of their toil and the healthful 
enjoyment of life ought to be reckoned as Productive Labor, 
Then for the other side of the distinction, we may recog 
aize in every community a class of non-jwoducers — person 
who do nothing directly or indirectly to increase wealth or 
promote the welfai^e of mankind, who are at best only con 
Bumers of the products of other men's labors. We have ta 
recognize also a class of Destructives, persons whose ener- 
gies are put forth to hinder all productive industry and 
2 



26 PRODUCTIOl^. 

destroy its fruits. Here must be included those who pan- 
der to the vices that unfit men for effective labor, those 
who as thieves, burglars, counterfeiters and swindlers, task 
Imuscles and brains, by force or knavery to rob their fellow- 
men, and the whole race of gamblers and speculators, 
whether their operations be carried on at the faro-table, or 
the pool-room, or the board of trade, or the stock-exchange. 
This whole class not only add nothing to the sum of wealth 
produced, but positively reduce it, by unfitting men for 
useful service and by unsettling the basis of industry, 
making its results uncertain. 

Changes effected by Labor. — We have seen that 
wealth is produced by the application of labor to existing 
natural objects. No human effort can create a particle oi 
matter. All that it can do is to effect changes in the mat- 
ter to which it is applied. For the production of wealth, 
jabor is directed to develop the utilities ^\hicX\ are embodied 
Ti the constitution of material things so that they can bo 
'vailable for the gratification of desire. We have already 
shown that strictly speaking, labor can do no more than to 
move tilings. But tiirough the exertion of his mental fac- 
ulties in discovery and invention man gains control of the 
forces of nature, by or in accordance with which, most of 
the desired changes are wrought. Here, we may in a gen- 
eral way speak of labor as working by and with the forces 
of nature to multiply useful tilings which can he ajyproprio' 
ted and exchanged, that is wealth, 

Now, the changes which may be produced in the ob- 
jects of nature may all be reduced to three, and concisely 
stated in the alliteration of three significant words, viz. 
Transmutation — Transformation — Transporta- 
tion. 

1. Transmutation. — Man may change the elementary 
form of matter. The farmer by means of seed, manure 



CHANGES EFFECTED BY LABOS. 27 

and cultivation, aided by the agencies of the sun and the 
earth, of rain, and the atmosphere, transforms the elemen- 
tary forms of carbon, gases, and water, into wheat. The 
chbmist changes the elementary forms of acids and alka- 
isies into salts. The dyer changes the elementary forms of 
tron and tannin into coloring matter ; and the case is the 
/Same with various other forms of human occupation. 

2. Tra.iis£onnation. — Man may change the aggregate 
form of matter. The cabinet-maker changes the form of 
a board into that of a desk or a table ; the smith, a piece 
of iron into a horse-shoe or a nail ; the mason changes a 
pile of bricks and mortar into a wall ; the cotton spinner, 
a bale of cotton into threau ; the weaver, this thread into 
cloth. And, in general, the labor of mechanics and man- 
ufacturers is employed in effecting changes in the aggre- 
gate forms of matter. 

3. Trajisportation. — Man may change tlie 'place of 
matter. Thus, the shipmaster transports a cargo of cot- 
ton from New York to Liverpool, and brings back a cargo 
of cotton goods, of crockery, or of hardware. The team- 
ster receives a wagon load of merchandise in one town and 
transports it to another. The owner of a canal boat re- 
ceives manufactured goods in Albany, transports them to 
Buffalo, and brings back to Albany, in return, a freight 
of agricultural produce. The agent of a railroad receives 
a hundred boxes of merchandise in Manchester, and trans- 
poits them to Liverpool. And thus, also, a large number 
of tae inhabitants of every populous town derive their sub- 
sistence, and frequently grow rich, simply by transporting 
frares and merchandise from one part of the town to another. 

These divisions, in general, correspond with the agrv- 
cultural, mechanical, and commercial departments of ha- 
man industry. We have adopted a different terminology, 
because it seems to form a more generic and better limited 



28 PBODUCTIOK. 

division, and one more conformable to tlie facts in the 
case. 

1. Concerning these divisions, it is proper to remark, 
that, though these are the various objects of human indus* 
try, yet it frequently happens that, he who labors in one, 
is also obliged to labor in one or both of the others. Thus, 
the farmer who raises a crop, is obliged to transport tho 
seei to the field, and frequently to transport his harvest to 
market. The cabinet-maker who manufactures a table, 
may transport his materials from the lumber yard. The 
engineer, on the railroad, is obliged to change the elemeii- 
iary form of wood, in order to produce the caloric, neces- 
sary to move his locomotive. AYe designate the class of 
laborers to which a man belongs, by the ultimate obj(jct 
which he has in view in exercising his profession. 

2. Each one of these forms of industry is equally im,' 
fortant in developing the utility of substances, that is, in 
giving them capacity to gratify human desire. Thus we 
see that the ore in the mine has no power to gratify desire, 
until it is made into iron or steel. The steel is worthless 
for the purpose of cutting, until it is transformed into a 
Knife, an axe, or some cutting instrument ; and, if I want 
to make a pen in New York, a knife is utterly useless to 
me for this purpose, while it remains in Sheffield or Liv- 
erpool. Unless these several utilities are all conferred up- 
on it, it would be of no service to me. Hence, in purchas- 
ing a knife, I pay for them all, and as willingly for one a 
the other. 

3. Hence we see how incori'ect is the notion sometimea 
ndranced, that all wealth is the production of one or of Poo, 
ani not of all these forms of human industry. All these 
<5hanges must be effected in almost every article which we 
consume, and if either of them were to be suspended, our 
desires would not be gratified, and the other two must also 
be discontinued. He who transports flour, performs an 



CHANGES EFFECTED BY LABOR. 2S 

act of as essential importance to the sustentation of the 
human race, as he who raises wheat. lie who brings s 
knife from Liverpool to me, performs a labor as important 
to me, as he who manufactures the knife ; for, if it werd 
tl iree thousaud miles off, it might, for all the purposes for 
which I want it, as well not be in existence. And yet 
more, if one of these forms of labor should cease, the others 
must soon cease with it. Of what use would wheat or wool 
be to the farmer, if they could not be transported from his 
farm ? And again : what gain could be derived from 
either, if there were no means of grinding the one, or of 
manufacturing the other ? Hence we see that all tlieform^ 
of industry mutually support, and are supported iy, each 
dtlier ; and hence, also, we see that any jealousy between 
different classes of producers, or any desire on the one part, 
to obtain special advantages over the other, are unwise, 
and, in the end, self-destructive. The fact is, that if left 
to themselves, they all flourish, and they all suffer together. 
Nor can either one be depressed, for any considerable 
period, without injuriously affecting both the others. 

These various forms of human labor enter, in different 
degrees, into the value of different articles of use. For in- 
stance, butchers' meat and green vegetables derive almost 
cheir whole value fi'om the first hind of labor, as they re- 
quire very little modification, and will bear but short trans- 
portation. On the contrary, salted provisions may derive 
a large portion of their value from change of place. Cloth- 
ing, cutlery, and what are commonly denominated manu- 
factures, deiive the greater portion of their value from 
change in the aggregate form. The original material con- 
stitutes, in general, but a small part of their price, and, 
not being of great bulk, their transportation is not very 
expensive. The steel that would make a pair of razors, 
and the cost of transporting them from Sheffield or Paris 
to New York would form but a yery small portion of theu 



30 PEODUCTION 

price. On the contrary, bulky articles, sncli as coal anil 
iron, derive a very large portion of their cost from trans- 
portation. Coal, that has but little value in the coal mines 
of Penns3^1vania, is sold for six or eight dollars a ton in 
Jliicago And ail the labor employed upon it, is that 
which is necessary for breaking it in pieces, and removing 
it from its bed to the house of the consumer. 

As, however, the human race is scattered over the face 
of the globe, and as their wants in all latitudes are so 
nearly the same, while no country affords facilities for 
supplying more than a very small number of these 
wants, it is evident that the labor employed in change of 
place must, in civilized countries, be most tiniversal, 
and must enter essentially into the greatest number o* 
commodities. Of this every one will be convinced who 
wil I take any article of dress, of furniture or of food, and 
corsiderthe amount of transportation that has entered into 
its production ; and, especially, if he take into account the 
transportation which has entered into the formation of tae 
instruments by which it had been produced. The sai^re 
truth is also illustrated by the fact, that whole natious, 
wit h very small natural advantages, as Holland and Veni ie, 
nave, in a short period, become immensely rich, merely by 
conferring change of place on the merchandise and } fo- 
ductions used by other nations. Water communication^ in 
tlio early stages of society, greatly diminishes the cos^ of 
trimsportation, and, of course, increases the facilit'es of 
exohange. It is on this account that the first settlement? 
of nations are always either on the shores of the ocean, or 
al<»ng the banks of navigable rivers. 

It is also worthy of remark that, until recently, in the 
progress cf society, the ingenuity of man has been more suc- 
cessful in devising means for increasing the productiveness of 
labor in the second and third, than in the first kind of human 
industry. Improved agricultural utensils, a better knowl- 



CHANGES EFFECTED BY LABOE. 31 

edge of the nature of soils^, and of the different kinds oi 
grain and edible vegetables, and of manures have now added 
considerably to the quantity of product that can be raised 
by a given amount of labor. Yet this increase is small in 
proportion to that effected by the use of machinery in the 
case of the cotton manufacturer, and by the use of the 
iocomot .ve and many other forces. It is, doubtless, wiscl^y 
ordered that it should be so. Agricultural labor is tin 
most healthy employment y and is attended by the fewest 
temptations. It has, therefore, seemed to be the will of 
the Creator, that a large portion of the human race should 
always be thus employed, and that, whatever effects may 
result from social improvement, the proportion of men 
required for tilling the earth should never be very greatly 
diminished. It is also to be remarked, that division of 
labor, which so greatly increases the productiveness of 
human industry in the other modes of production, can be 
applied but in a small degree to agriculture. No man can 
devote himself exclusively to ploughing, sowing or reap- 
ing ; because only a small part of the year can be employed 
in either of these occupations. The farmer, must, there- 
fore, practise them all, at different times ; and, of course, 
every farmer must be able to perform not one, but all the 
several operations required in his trade. This forma 
another reason why the increase of productiveness of 
human industry, in this department of labor, has not kept 
pace with that which has been witnessed in manufacture! 
and commerce. 



CHAPTER V. 

MEANS FOR IXCEEASING THE EFFECTIVENESS 
OF HUMAN LABOR. 

The physical power of man is extremely limited. Ilia 
strength is soon exhausted. Ilis limbs and mnscles un- 
assisted, are insufficient to meet his simplest wants. He 
needs shelter, cooked food, and clothing. But he could 
not, with his teeth and nails, cut down a tree and fashion 
it into a cabin. He cannot, by his hands, either cook hia 
food, or manufacture a fabric suitable for clotliing. All 
tliese can, however, be done by other agents which he can 
command and control. Thus, iron can be made to cut 
town and fashion a tree, fire to cook his food, and a spin- 
ning wheel and loom can be made to furnish him with 
clothing. 

As mankind multiply and are bound together in society, 
.ndividuals are found to differ in capacity. One has spe- 
cial endowments for one kind of labor, another for another. 
Hence there naturally springs up some systematic arrange- 
ment for mutual cooperation to increase the productiveness 
of the community, by assigning to each the labor for which 
he is best fitted, and giving all something to do. 

Two means by which the effectiveness of human laboT 
IB ii.creased, are thus indicated. They are The Use oj 
Natural Aflents, and TJie Division of Labor. 

1. Natural Agents.— ^4 natural agefitj is any qual< 
itj or relation of things which can be used for the purpose 



NATUKAL AGEiSrS. 33 

of assisting us in production. Thus, tlie light and heat oi 
the sun are natural agents, without the aid of which Ave 
could not create vegetable products. Caloric or artificiiil 
heat, is a natural agent, without which we could neitliei 
cook our food, prolong our lives in cold climates, give anj 
raluable quality to metals, nor create steam for the pur- 
pose of machinery. Magnetism is a natural agent, by 
which we are enabled, in any part of the earth, to know in 
what direction we are moving. The various powers aid 
instincts of animals are natural agents, by which we accom- 
plish purposes which could not be accomplished without 
them. Thus, the farmer avails himself of the musculai 
power and docility of the ox and the horse ; the huntsman, 
of the fleetness and scent of the hound, etc. Wind, tho 
gravitating power of water, and steam, are natural agents, 
by which we create the momentum necessary to various 
operations in the arts. 

A tool, or a machine, is any combination of matter, by 
means of which we are enabled to avail ourselves of the 
qualities or relations of a natural agent. Thus, a lena 
or burning glass, is a tool, by means of which we concen- 
trate, for useful purposes, the rays of the sun. 

A stove, or a fire place, is an instrument, or tool, by 
which we avail ourselves of the calorific properties of fuel. 

A mariner's compass is a tool, by which we avail our- 
Belveg of the peculiar quality of the magnetic needle. 

A water wheel is a tool, by means of which we avail 
Curselves of the gravitating power of water. 

A steam engirie is a tool, by means of which we avail 
ourselves of the expansive powor of steam. 

Tho only difference between a tool and a machine is, 
that the one is more complicated than the other. A com- 
mon hammer is a tool, by means of which we av^•il our- 
selves of the gravity and density of iron, and of the power 
of the lever. A trip-hammer, by which large masses qf 
8* 



S4 PBODUCTIOK. 

iron are fashioned and wrought, is called a machine, but 

the principles employed are, in both cases, the same, only 
the trip-hammer is moved ^y a natural agent, water, ox 
steam, while the common hammer is moved by the hand. 

The qualities and relations of natural agents are the gift 
of God, and, being His gift, they cost us nothing. Thus, 
in order to avail ourselves of the momentum produced by 
a water -fall, we have only to construct the water-wheel and 
its necessary appendages, and place them in a proper posi- 
tion. TVo then have the use of the falling water, without 
further expense. As, therefore, our only outlay is the cost 
of the instrument by which the natural agent is rendered 
available, this is the only expenditure which demands the 
attention of the political economist. 

If we reflect upon the various natural agents employed 
by man, we shall see that some of them can be used with- 
out any tools whatever. Such is the case in agricultural 
.abor, with air, and the light of the sun. Others require 
only so simple instruments, that their effect upon price is 
not appreciable. Thus, a mariner's compass, which would 
last for twenty years, and assist in the transportation of 
jalf as many millions' value of merchandise, would cost 
but a few dollars. Others are used by few persons, and 
for particular and unusual purposes, as the lens, or the mi- 
croscope. It is only those agents which require for their 
employment, machinery of which the cost is appreciable, 
and which are of so general necessity, that their use enters 
into consideration in estimating the expenses of produc- 
tion, that require to be specially noticed in Political 
Kconomy. 

The means most universally required for creating 
change, is 7no7nentu7n, or, as it is commonly called, po\*er. 
Without this, in agriculture, no change in elementary 
form, and, in mechanics, no change in aggregate form, and 
in transportation, no change in place, can be effected. 



KATUBA.L AQEKTS. ^b 

The liatural agents connected with tlie use of momeu 
tnm, may be divided into two classes : 

1. Those which create momentum. 

2. Those which direct it, 

1. Of those -which create Momentum, wo ha^e 
fcwo kinds : Animate, and Inanimate. 

1. Animate. These are, beasis of draft and burden j, 
generally. The most common of these are, the ox, the 
horse, and the mule ; others in use in particular districts, 
are the camel, the elephant, the dog and the reindeer. 

The subjection of animals to the human will, marks an 
era in the progress of civilization ; and teaches us that the 
first important step has been taken in the improvement of 
the condition of man, and of the productiveness of human 
industry. The ox and the horse have much greater pliysi' 
cal power than man. They may also be sustained at a 
much less expense. Their food is the spontaneous produc- 
tion of the earth, which, for a large part of the year, they 
gather for themselves, and which requires no labor of 
preparation. They need no clothing in any latitude, and 
in the warmer parts of the temperate zone, need no shel- 
ter. But, in consequence of his superiority in intellectual 
endowment, man can direct and goveVn the physical power 
of several of these animals, and, by attaching them to agri- 
cultural machines, can command that power at his will. 
If, then, by the use of animals, one man can wield a physi- 
cal force equal to that of ten men, he will be able to pro- 
duce, by the labor of a day, ten times as much as he could 
before the introduction of animate agents. lie will, theie 
fore, by the same amount of labor, produce ten times as 
large an amount of objects of desire ; that is, ol means o( 
humaL happiness. 

In the earliest stages of society, animate power must b€ 
ised for the production of momentum, in all the three do- 



M PRODUCTIOir. 

partraents of human industry. In the labors of agiicul- 
ture, it is still employed, and must probably be thus em- 
ployed forever. Nothing has yet suj)erseded it, and there 
ifi reason to doubt whether any thing ever will to any great 
extent supersede it. The improvements that have leen 
made by the introduction of other creative forces, have for 
the most part, been connected with the other modes of 
operative industry. 

2. Of Ina7ii')nate Natural Agents. The inanimate 
agents, most commonly in use, are : The explosive force 
of Gunpowder, Dyna^nitef etc. ; Wind ; The gravitating 
power of Water ; and The expansive power of Steam. 

1. Gunpowder is used in the blasting of rocks, in hunt- 
ing, and in war. its value, in the blasting of rocks, is very 
considerable. By drilling a small hole, whicli may be done 
oy one man m a aay, and by the use of a few ounces of gun- 
powder, a force may be exerted, in an instant, producing 
an effect which twenty men, for several days, could not 
otherwise have exerted. Ilence, it is of very great use in 
ftU works of iiiternal improvement, where rocks must be 
2'emoved, in order to admit the passage of railroads and 
oanals. In fact, it is doubtful whether many of the most 
important of these works could ever have been executed, 
but for this agent. Others, if the execution of them were 
possible, must have been accomplished at so great an ex- 
pense, that the investment of capital in them would not 
have been profitable, and, of course, it would not have been 
made. Nitro-glycerine, a recent invention, has greater ex- 
plosive force than gunpowder and in the form of dynamite 
^iiid other preparations is now commonly substituted for it 
in heavy blasting. 

Gunpowder is also used extensively in luar. If war be 
oeneficial, or even necessary, gunpowder is an agent of the 
utmost importance ; for, by no other means yet discovered, 
\& it possible to destroy so many men with so little physi 



KATUEAL AGEXTS. 3? 

cal suffering, and with so little personal labor. It lias alsc 
a moral advantage over other methods of slaughter, inas- 
much as the destruction of human life, in this manner, 
excites less sensibly the ferocity of the human heart. On 
his account, wars, since its introduction, have been con- 
lucted on more humane principles than formerly. It haa 
xUo been a valuable auxiliary to the progress of civilization, 
since it has conferred on civilized, an undisputed mastery 
over uncivilized nations. There has not been, for centuries, 
any danger to Christendom from barbarian invasion. Be- 
sides, the more energetic are the means of destruction in 
war, the less is the loss of life in battle. Hence, of a given 
number of combatants in an engagement, a much smaller 
proportion is now slain than formerly. This might almost 
give rise to the paradoxical hope, that some means of de- 
struction might yet be invented, so overwhelming in its 
effects, as to put the smallest number of men on a leve 
with the greatest, and hence to put an end to wars al 
together. 

2. Wi7id is another agent used for the creation of mo- 
mentum. As a stationary agent it is an important me- 
chanical power, in countries destitute of water power, or 
of the fuel necessary for the production of steam, or of the 
capital which must be invested in the machinery required 
in the use of more expensive agents. Its principal advan- 
tage is its cheapness. It costs nothing to create it, and the 
machinery, by which it is applied, is simple, and easily 
constructed. 

The disadvantages of wind are its uncertainty^ both in 
quantity and in time, and the difficulty with which it is 
regulated. In consequence of the irregularity of itsforeOf 
it is impossible to employ it in labor requiring delicacy of 
operation : and, in consequence of its uncertainty in tijnej 
it could not be employed where the labor of many persons 
was dependent on its assistance. 



38 PRODUCTION. 

As a locomotiTe power on water, wind was until reoenilj 
almost universally used in navigation. Though the direc- 
tion in which it acts is variable, yet nautical skill enahlei 
us to use it when blowing from almost any point whatever 
Its variation, in the quantity of force, is here also a mattei 
of less consequence, since this circumstance can affect the 
operation to be performed only in respect to time. And 
variation, even in this respect, has in a great degree yielded 
fco science and enterprise. It is astonishing to observe with 
what precision and certainty voyages were made by sail 
between New York and Liverpool. But with the inven- 
tions of Fulton a new era commenced. Steam very soon 
was employed in the placp of wind in the navigation of 
rivers and along the seaboard. It was not, however, until 
the year 183? that the experiment was successfully made, 
of establishing a regular communication between Europe 
and America by means of steam. In May of that year, the 
steamers Sirius and Great Western, the former from Liver 
pool, the latter from Bristol, arrived m New York. Since 
that time passages have continued to be made between the 
above ports with great regularity, and thus far with few 
disasters. It is demonstrated that the navigation of tli^ 
Atlantic, by steam, is as perfectly within the power of man^ 
as the navigation of the Thames or the Hudson. 

3. The gravitati7ig j^ower of Water is another agent em- 
ployed for the creation of momentum. This is used only 
us a stationary agent. Its advantages are that it is cheap, 
tolerably constant, and frequently is capable of exerting 
great mechanical force. Its disadvantages are, that it is 
gtatio7iary ; that is, that it can be used only in situations 
where it has been created by nature. Ilence, it is fre- 
quently at a considerable distance from the seaports whence 
the manufacturer derives his supplies, and whence he ex- 
ports his products. In such cases, the cost of tran'sporta* 
tion must be deducted from the prolits of the establish.. 



IIJ ANIMATE AGEXT3. 89 

ment, and is of course, to this amount, a diminution oi 
the profits. 

Water cannot always be commanded in sufficient qiiari' 
tity. Very few mill-seats are secure from the liability tc 
suffer from the want of water. This is a great inconveui 
ence, inasmuch as, in seasons of drought, a large numbei 
of the laborers must be unemployed, and a large portion 
of the expenses of the establishment must be incurred, 
without yielding any remuneration to the proprietor. 

Another disadvantage of water power is, that it is lia- 
ble to danger from inundation. Though this may be 
guarded against in many cases, yet it frequently can be 
done only at an expense which greatly reduces the cheap- 
ness of the agent. Notwithstanding these disadvantages, 
water power will probably be always used, where great 
mechanical force is required ; where the machinery to be 
employed is simple, and where the operation does not re- 
quire the greatest possible nicety of execution. Recent 
nventions, however, have greatly improved the steadiness 
of this power and men's control of its action. 

4. Steam is the power, however,, most commonly in 
ase at present. Its advantages are, that it can be used to 
3reate any required degree of mechanical force ; that it is 
perfectly under human control ; that it may be created in 
any place where fuel can be obtained ; that it can be used 
at will, either as a stationary, or a locomotive power ; and 
that it can be made to act with perfect regularity. Its 
only disadvantage is its expensiveness. The machinery by 
which it is generated is costly, and requires frequent 
repairs ; and the fuel, by which it is maintained, is a very 
serious item of consumption. The price of engines, how- 
ever, has been much reduced, as the demand for them haa 
increased. And by improvement in their construction, 
the consumption of fuel has been greatly diminished, 
while increased facilities foi transportation have mate. 



40 PRODUCTION. 

rially reduced its price. The introd action of steam 
power greatly reduced the price of fuel in Great Britain, 
until the rapid consumption threatened to exhaust hei 
stores. 

The question whether steam or water power should be 
used in any particular case, is commonly to be decided bj 
their relative expensiveness. This will be decided, princi- 
pally, by the place in which the power may be required. 
Water power will generally be the cheaper where it can be 
procured in abundance, and sufficiently near to a market 
or to tide water. But where it is variable in quantity, or 
is at a considerable distance from the place of delivery, the 
cost of transportation will frequently overbalance its other 
advantages, and render steam power the more economical. 
Machinery, propelled by steam, can be erected and carried 
on upon a wharf, or in the midst of a city ; and hence it 
avoids all the cost of unnecessary transportation. Ma- 
chinery propelled by water power can be erected only at 
the place where the water power exists, and of course, ia 
subject to all the expense of transportation between that 
place and the market. 

The ADYAKTAGES of inanimate over animate natural 
agents, are several, 

1. Inanimate agents can, within a small compass, and 
with comparatively little weight, produce a vastly greater 
amount of momentum, than animate agents. Thus, a 
st<;am engine, of one hundred and fifty or two hundred 
hoise power, occupies but a small space, and forms but a 
small part of the cargo of a vessel. But so great a num- 
ber of horses could scarcely be carried in any vessel do- 
signed to transport either freight or passengers ; and 
besides, no mechanical arrangement has yet been devised^ 
by which such a number of animals could convenientij bi 
employed upon one operation. 



ANIMATE AND INANIMATE AGENTS. 41 

8. They are continuous ; that is, they are never liable 
fco fatigue, and never need rest. Animals must spend the 
greater part of their time in feeding or in repose. Espe- 
cially is this the case, if they are worked rapidly. During 
this time, the labor which they perform must either be 
Buspended, or else other animals must take their place. 
A horse cannot labor severely for more than eight hours in 
twenty-four. Hence, if the uninterrupted labor of horsea 
were required for twenty-four liours, three relays must ba 
provided. Thus, if a boat were required to perform a 
voyage in twenty-four hours, she must employ three relays 
of horses ; that is, a steamboat, worked by a power equal 
^^0 that of one hundred and fifty horses, would require four 
hundred and fifty horses, in order to create the necessary 
momentum. 

3. Hence, there is a great gain in Economy. The firs^ 
cost of inanimate is generally less than that of animate 
agents ; they are liable to no diseases ; they require no 
food ; and create expense only while they are performing 
their work. Were the labor now performed by steam, to 
DC performed by horses, the price of the ordinary necessa- 
ries of life would be quadrupled, and many articles of ordi- 
nary use would be placed out of the reach of any but the 
most opulent. Nor is this all. The substitution of inani- 
mate for animate power has a great tendency to reduce the 
cost or to increase the supply of all agricultural products. 
Suppose that, by the use of steam, one thousand horses 
can be dispensed with. A horse requires for sustenance, 
throughout the year, as much agricultural produce as 
would support eight men. If, then, these one thousand 
horses can be dispensed with, there may be produced, on 
the land which was formerly employed for the production 
of hay, as much wheat as will support eight thousand men. 
This must, at first, reduce the price of wheat ; and tli« 



12 PBODUCTIOK. 

result would be, that the district would support eight thoi » 
sand more men than before.* 

4. There is also, commonly, a gain in personal safety. 
Inanimate agents act under laws which may be known and 
obeyed, and of which the results may be commonly foreseen 
Rud guarded against. A-nimals are endowed with passioni 
and will, which we can frequently neither control nor in- 
fluence. Besides, the greater expensiveness of the individ- 
ual machines emj)loyed in the use of inanimate agents, 
renders it for the interest of the proprietor to employ men 
cf experience and responsibility to manage them. This 
v^ery sensibly diminishes the risk. When we reflect upon 
the vast amount of travelling by steamboats and railroads, 
it must be evident that, notwithstanding the accidents to 
which they are liable, a vastly greater amount of human 
life would be sacrificed, if the same number of persons 
were transported by horses. 

5. Inanimate agents can be used wWiout ilie injlldion 
of pain. Inanimate agents are insensible. Where the 
labor to be accomplished is either severe, or where it 
'•equires great speed, animals must be rapidly destroyed. 
This exposes them to great suffering. A horse in a stage 
coach can rarely travel rapidly, more than ten miles a day 
and most horses will endure even this labor but for a short 
time. From this sufferng, inanimate power is exempt. 
It never endures pain from being over driven. 

6. Animate power decreases tuith velocity. Hence, we 
must soon arrive at a point beyond which it can no furthe: 
be used to create momentum. If we represent the traD- 
tive force of a horse, when moving at two miles an hour, 
ftt one hundred, his force at the rate of three miles, will be 

* These Btatements are allowed to stand as written by Dr 
Way land. But experience has shown that the use of steam has, bj 
Jhe stimulus given to industry, caused an increase rath^^r ♦ban a dim 
inution of the number of horses kept. C. 



AGEJTTS FOR DIRECTING MOilEXTUM. 43 

eighty-one ; at the rate of four miles, s Ixty-f our ; at the 
rate of five miles, forty-nine ; at . the rate of six miles, 
thirty-six ; while at the top of his speed, he can carry 
nothing more than his own weight. An engine, on the 
X>ntrary, may be made to work w^ithin certain limits, aa 
|iowerf ally at one degree of velocity as at another. In aJl 
cases, therefore, in which both great power and great 
velocity are required, inanimate power must, of necessity, 
he employed. 

From these causes, we see that inanimate is rapidly tak- 
ing the place of animate power, both where stationary and 
where locomotive force is required. By the additional 
speed which it is capable of producing, it gives rise to great 
economy of time. This, to all persons engaged in active 
employments, is a consideration of vast moment. Being a 
continuous agent, it is also enabled to act with the great- 
est certainty. Ilence, men may adjust their transactions, 
in diiierent places, with entire precision. This is also 
another source of economy, both of time and of capital. 
And, besides, notwithstanding the expensiveness of the ar 
rangements for the use of locomotive forces, the amount 
of additional travelling to which they give rise, is so great 
that the expensiveness of transportation between different 
places is, in general, materially diminished. 

Of the Natural Agents by "which Momentum 
is directed and applied. — It is obvious that a great 
addition is made to human power, where the agents for 
creaiing momentum have been discovered. But this is not 
ail. Several combinations of matter may be formed^ by 
rhich mere human force may be greatly assisted, and 
which, by being united with the agents ""or creating mo- 
mentum, may greatly increase and vary and give adapta- 
tion to its utility. These are called Mechanical potuers, 
irhich are treated of at laro^e in works on Mechanics and 



44 PEODL'CTIOIT. 

Natural Philosophy. In their simple form, they are the 
lever, the toheel arid axle, the inclined 'plane, the screio, the 
pulley, and the imdge. They are variously combined for 
producing the different results of mechanics, but may be 
all reduced to these simple elements. 

By means of these, the muscular power of man is en 
ifcbled greatly to increase its effect ; that is, a man by hi^ 
own strength can now accomplish labor which he could not 
accomplish without them. Though these instruments give 
no new strength, yet they greatly increase the effectiveness 
of that which already exists ; and hence, their invention 
marks an important era in the progress of civilization. It 
Is also to be remarked that their origin, in point of time, 
is far in advance of the discovery of the creative agents. 
Archimedes had made great progress in the discovery and 
application of these modifying powers when the use of crea- 
tive agents was almost unknown. 

The triumph of human skill is, however, achieved when 
these two forms of natural agency are combined in a single 
machine. By the one we generate power to what extent 
(Soever we choose ; and by the otlier we modify it in any 
form, give to it any application, and direct it to any pur- 
pose that our convenience may require. It is in this man- 
aer that man renders all the various powers of nature 
tributary to himself. He can thus create and use as he 
pleases as great a power as he desires. lie devolves the 
labor on nature, and he has only to fabricate the instru- 
ments and give them their direction. lie is successful just 
in proportion as he does this ; since nature always works 
with un deviating accuracy, with unerring skill, with inde- 
fatigable perseverance ; and she always works for nothing. 

It may be useful to specify some of the results accom* 
plished by the various instruments which man employs foi 
modifying that momentum which is exerted by the first 
clas3 of natural agents. 



AGEl^TS FOR DIEECTIIS^G MOMENTUM. 45 

1. We are thus enabled to change the direction of the 
power. Tlius, in the cylinder of the steam engine, the 
momentum is created either in perpendicular or horizontal 
strokes. This, being by means of an arm and a crank 
changed into a circular motion, moves the paddle-whoela 
of a steamboat. Thus, als:^ in the machinery for moving 
ft trip-hammer, a circular is changed into .a perpendicular 
motion, by the striking of the cogs of a wheel upon the 
short arm of the lever, while the hammer is attached to the 
other arm. 

2. ^^QQ^clwcnga poiver for velocity. This is done m all 
spinning machinery. By water or by steam, we cause a 
large wheel to revolve ten, twenty, or thirty times in a 
minute, and with a power equal to that which could be 
produced by fifty or one hundred horses. In spinning, 
however, we need small power but great velocity. Uence, 
by the combination of various large and small wheels we 
produce a velocity, in a thousand spindles, equal to many 
thousand revolutions in a minute. The whole of this fifty 
or one hundred horse power is thus spread over a large 
manufactory, and adapted by various contrivances to every 
degree of velocity and every form of motion that may b<^ 
required. 

3. We are thus enabled to exert forces too great foi 
animate power. By water power or by steam we can gen- 
erate as great a force as we please ; and we have only to 
combine with it the proper adjastments, in order to exert 
upon any point any momentum which we desire. The 
power required to roll and hammer iron or copper, to pro 
pel steamboats, to forge anchors, and that used in sevtra 
other of the arts, is greater than could be exerted by any 
animate force with which we are acquainted, unless it were 
exerted by means of some combination of the mechanical 
forces. 

4. We are thus also enabled to execute operations too 
delicate for human touch. \ urv delicate ox-)eration3 sooa 



48 PBODUCTioiq. 

weary tlie nervous system by the excessive attention wliicli 
they of necessity require. Tims, in order to spin the finest 
tliread on a spinning wheel there must be great accuracy, 
both in the velocity of the wheel and in the muscular powei 
exerted in drawing out the thread. This requires an effort 
©f attention which the human system cannot long maintain, 
and of course, the thread will frequently be uneven. But 
by means of machinery both of these operations may be ad- 
justed with mathematical accuracy ; and as machines have 
no nerves, they will be perfectly faithful to that adjustment. 
Hence machinery is necessarily used in the manufacture of 
such articles as require for their formation identity of re- 
sult, such as screws, types, etc. Nevertheless it is a singu- 
lar fact that no fabrics have yet been produced by machin- 
ery equal to the Belgian lace or the India shawls wrought 
5y hand. Careful training and hereditary knack, cultivated 
through many generations, enable human nerves and mus- 
cles to bring forth the most delicate and perfect products Oi 
jabor and skill, though at an immense expenditure of labor. 

5. By means of machinery, we are enabled to accumu- 
*ate poiuer. We thus exchange a continuous and small 
force for a sudden and violent one. Such is the case with 
the pile-driver, and the common beetle or mallet, when 
used in combination with the wedge. 

6. By the same means we are enabled to exchange a 
short and irregular effort for a continuous and regular move- 
ment, or to spread the action of a short, over a long period 
of tiiue. This is done in clocks, watches, and other similar 
machinery. Here we spread the action of a minute over a 
day, or a week, and with almost mathematical accuracy. 

In consequence of the above mentioned application of 
machinery, various other advantages are realized in pro- 
duction. For instance ; there is frequently a gi'eat saving 
of material, as in ihe change from making boards with the 
adze, to that of making them with the saw ; and again tho 
labor of natural agents is so much cheaper, that many arti- 



AGEXTS FOR DIRECTING MOMEJ^^TUM. 47 

cles, which would otherwise have been worthless, are now 
deserving of attention, as they may now be profitably en- 
dowed with some form of value. 

We api)end to these remarks upon the use of natural 
agents an extract very graphically describing the power 
of the steam engine, which has commonly been ascribed to 
Lord Jefirey, of Edinburgh : 

" It (the steam engine) has become a thing, stupendous alike 
for its force and its flexihility ; for the prodigious power which it 
can exert ; and the ease, precision, and ductility with which it 
can be varied, distributed, and applied. The trunk of an ele- 
phant, that can pick up a pin or rend an oak, is as notliing to it. 
It can engrave a seal, and crush masses of obdurate metal before 
it ; draw out, without breaking, a thread as fine as a gossamer ; 
and lift up a ship of war, like a bauble in the air. It can embroi- 
der muslin, and forge anchors ; cut steel into ribbons, and impe- 
loaded vessels against the fury of the winds and waves. 

"It would be difficult to estimate the value of the bcnefita 
(Vhich these inventions have conferred upon the country. There 
is no branch of industry that has not been indebted to them, and 
in all the most material, they have not OBiy widened most mag- 
nificently the field of its exertions, but multiplied, a thousand 
fold, the amount of its productions. It is our improved steam 
engine, that has fought the battles of Europe, and exalted and 
sustained, through the late tremendous contest, tlie political great- 
ness of our land. It is the same great })ower, wliicli enables us to 
pay our national debt, and to maintain the arduous struggle in 
which we are still engaged, with the skill and capital of countries 
.ess oppressed with taxation. 

"But these are poor and narrow views of its importance. li 
has increased, indefinitely, the mass of human comforts and enjoy- 
ments, and rendered cheap and accessible, all over the world, tl»^ 
materials of wealth and prosperity. It has armed tlie feeble hand 
of man, in short, with a power to which no limits can be assigned ; 
completed the dominion of mind over the most refractory quali- 
ties of matter ; and laid a sure foundation for all those future 
miracles of mechanical power, which are to aid and reward th# 
Labors of after generations." 



CHAPTER Vl. 

DIVISION OF LABOR. 

The effectiveness of labor is increased by systematizing 
its opeiJitions. The principle is that diffei^ent kinds of 
labor he distributed to different classes and individuals, so 
that each shall do that for tvhich he is best fitted. 

The principle comes out of that order of nature which 
Tias given to certain regions of the earth pecaliar adapta- 
tions for certain productions and to certain individuals pe- 
culiar endowments for certain kinds of work ; and also 
from providential circumstances which have directed the 
efforts of different nations and classes and individuals, ij 
specific forms of production. 

It is illustrated on a broad scale, in the different indus 
tries of different nations, adapted to their respective advan- 
tages. It thus gives rise to the wide commerce of the 
world. It is illustrated also in all civilized communities, 
in the distribution of the various forms of service, trades 
and professions to different people, according to their seve- 
ral capacities, tastes and circumstances. It thus gives rise 
to the multifarious exchange of values in detail, wliich 
passes objects of desire from producers to consumers, and 
constitutes so large a part of the business of every civiUzeJ 
community. It is manifest that the results of productive 
labor are both increased and improved when the farmer 
ftnd the baker, the blacksmith and the jeweler, the weaver 
and the tailor, the merchant, the lawyer, the doctor, etc, 



DITISIOK OF LABOS. 49 

each deyotes his energies to the work of his particulat 
calling. 

Some application of the principle is essential to the or- 
ganisation of civilized society ; and civilization advances ai 
this principle is carried out in minute details. The rami- 
fications of the principle are many and exceedingly intri- 
cate. For illustration, Ave may start with the loaf of bread 
on our table and trace out the various forms of labor 
directly or indirectly concerned in bringing it before us, 
fit for food. The loaf came to us from the baker, who 
received his flour from the miller, who in turn received 
his grain from the farmer. This line of connection is sim 
plo and direct. But if we step into the bakery, we see ai 
once that many other forms of labor are involved in this 
product. The mason and the brick-maker and the lime- 
burner have all done something to build the oven ; the 
services of the carpenter, the blacksmith and the tinner, 
were necessary to form the few simple tools required 
another line of laborers were employed to cut or dig, to 
transport and to jorepare the fuel ; others still were con- 
cerned in producing the salt, the yeast and the soda mixed 
With the chief ingredient ; and the tools and materials of 
each of these branches of labor required many other kinds 
of labor. We pass to the mill whence the flour came, and 
here we have to recognize besides the miller and his im- 
mediate helpers, the various laborers who improved the 
water-power, built the mill, prepared the mill-stones, con- 
trived and framed the machinery, consisting of many 
partSj each involving diverse labor and skill, and those whe 
made the barrels, and packed and transported the flour ; 
and in addition to these, are the many a little further off 
who furnished the instruments and materials for their varied 
work. We pass on to the farmer who raised the wheat, 
and with him pass before us all concerned in the culture 
and harvesting of his crop, all who had to do with clearing; 



50 PKODUCIIOK. 

fencing and draining the fields, and all employed in the 
manufacture of his divers tools. Then, back of all these, 
was the seed-wheat and the complication of labor involved 
in its production ; and in each line of industry noticed, 
the ramifications run back indefinitely to the labor of 
many groups and successive generations of men. Wha 
can reckon up all the different persons and forms of 
Labor represented thus in the bread just ready to be 
eaten ? 

Contrast with tliis complicated division of civilized in 
dustry, the rude efforts of the savage who combines in one 
person all kinds of labor. The Indian squaw makes her 
own hoe, scratches the ground, plants her corn, tends it, 
gathers it, pounds it into hominy, brings in her own fuel, 
wets up her cake and bakes it in the ashes. The cost ol 
this imperfect product, reckoned in hours of toil spent 
upon it by the single laborer, is more than a hundred fold 
greater than that involved in producing the better article, 
which represents an infinitesimal quota of labor expended 
by each of a hundred or more persons contributing to the 
common result. 

From this broad, general view, it is evident that thia 
principle of Division of Labor must enter into every de- 
partment of Political Economy. Indeed, the whole science 
grows out of the manifold bearings of this principle in the 
structure and functions of civilized society. 

But as it relates to the department of Production, th 
principle is presented in a narrower and more specific view 
Here the expression Division of Labor has a technical 
mcamiig, respecting the production of one or another par- 
ticivlar product. Suppose an establishment for the manu- 
facture of an article, watches for instance, is projected. 
The laigest and best results with the least experditure of 
labor arc desired. Ot viously it will greatly economize labor 
to give to each man or set of men one part of the watch tc 



DITIST.OIf OF LABOR, 61 

make. In the technical sense, then Didsion of Labor im^ 
plies two things. 

1. J )i anali/sis of the article to be produced, and of ths 
work to be done into distinct and simple parts. 

2. A distribution of these parts to the persons em- 
ployed, such that each workman shall confine himself, aa 
nearly as possible, to a single operation. 

The arrangement contemplates such an adjustment of 
the processes that the several operations shall keep each 
other going. One man's work on one part, may balance 
that of three or four on another. The system is complete 
and perfect wlien there are no superfluous hands and none 
are kept idle, waiting on others' moTements, — wlien the 
Beveral processes fit into each other like the gearing o. 
smooth running machinery. 

The Special Advantages of Diyision of Labor may 
oe stated as follows : 

1. Division of labor sliortejis the period required for 
yarning an oj^eratioii. The more complicated the opera- 
tion, the longer is the time necessary for acquiring the 
skill requisite to the performing of it successfully. But 
this time spent in learning, is useless to the oj^erator and 
to society, except in so far as it is necessary to the crea- 
tion of the product. The longer the time necessary for 
learning an operation, the higher must be the wages of the 
operator for the remainder of his life ; and also, of course, 
iho greater must be the price of his products. If this can 
be lessened, the price of course will fall. That this is lei- 
?ened by division of labor is evident from an obvious ey- 
ample. Suppose that a given process, say the making of 
D.ails, consists of seven operations ;" and that each of these 
operations required one year's practice before it could be 
guccessfully performed. Now, if seven men were to learn 
this occu2)ation and each one were obliged to learn e?er^ 



62 PRODUCTIOl?". 

operation^ the time required would be 7x7=- 4.1) years j 
whereas, if each of them were required to learn but one, 
the time would be but 7x1=7, or, the difference would 
be 49 — 7=42 years of human labor, or six-sevenths ol 
the wliole time, which would thus be saved. There would 
be six years more of productive labor in the life of each of 
these men ; and, as they had spent less time in acquiring 
their art, they could afford to exercise it for lower wages. 

Besides, there is intimately connected with this cause 
another of considerable importance. Every one in learn- 
ing an art, must, by unslcUfulness, destroy a considerable 
portion of capital. And this amount of capital will be in 
proportion to the number of operations which he is obliged 
to learn. Thus, suppose that a man learns seven opera- 
hions, and, in learning each destroys ten dollars' worth 
of capital, the amount which he will destroy in acquiring 
his whole trade will be 7 X 10=70. If he nave to learn 
but one, it will be but ten dollars ; and thus, the difference 
will be 70 — 10=60 dollars, upon every such individuah 
A difference so great as these two combined, when spread 
3ver the whole face of society, will have no inconsiderable 
effect upon the annual net revenue of a community. 

2. AV^hen one man performs all the operations required 
in a complicated process, much time is lost in passing fi'om 
one operation to another. By division of labor, this loss ia 
amidecL 

The effect of habit is known to every one. It renders 
%w\' operation easy, which is frequently repeated. The 
.liiind and the muscles become adapted to a particular form 
of labor ; but if that form of labor be suspended and our 
nttention be directed to another, it requires a considerablG 
time before we can acquire a different habit, and, in the 
mean time, the good effects of the preceding habit are, to a 
considerable degree, lost. Heace, he who is frequently 
passing from one occupation to another, is in the condition 



DIYISIOK OF LABOK. 63 

of him who is, during bis wliole \iie, forming habits j and 
never in the condition of him who has the advantage oi 
hiabits already formed. Besides, this long habit produces 
IQ the muscles a capacity for continued exertion. He who 
s in the liahit of performing an operation, can perform it 
ivithout sensible fatigue for several hours together. Every 
one who has ever sawed wood or used a spade in a garden, 
is sensible of this fact. Now, all this advantage is lost by 
frequently turning from one operation to another. 

3. Where complicated ^00/6^ are to be used and there is 
no division of labor, much time is also lost in adjzisting 
them to the different kinds of work. By division of labor 
this disadvantage is obviated. Suppose that nails of diffei 
ent sizes are to be made, and it is necessary that the ma^ 
chinery, in order to adapt it to the different kinds of work, 
Bhould be frequently adjusted ; the time so occupied pro- 
duces nothing and is lost. If, on the contrary, one machine 
;s permanently used for the manufacture of nails of one 
particular size, all this loss is avoided. This is also more 
obvious when the adjustment involves expense ; as, for in- 
stance, when a furnace is used. If a furnace be heated, 
ind then suffered to cool while the operator is performing 
some other labor, the fuel consumed after he leaves it, and 
ihat which is used to bring it again to the requisite tem- 
perature are a total loss, in addition to that of the time 
and labor required in kindling the fire, and in waiting for 
the rise of temperature. By dividing the labor so that one 
person shall be always employed at the furnace, while othera 
s^ employed at other parts of the process, much capita 
and labor will be saved. 

4. By constantly pursuing the same occupation, a 
degree of sJcUl and dexterity is acquired, which greatly 
increases the productiveness of human labor. This advan- 
tage is lost by employing the same individual upon several 
operations. Adam Smith informs us, that a blacksmith 



54 PBODUCTIOIS'. 

who occasionally makes nails, but whose whole business is 
not that of a nail-maker, can make but from eight hun- 
dred to one thousand nails a dav ; while a lad who "aas 
never exercised any other trade, can make upwards of 
rf"wenty-thrce hundred a day. All who have been accus- 
tomed to visit manufactories, must have been surprised to 
observe the dexterity which is acquired even by children 
in performing the oj^erations in which tliey are exclu- 
sively engaged. It is probable that the iierformers of jug- 
glery, or sleight-of-hand, derive their skill almost entirely 
from this cause. They seldom perform more than a few 
operations, but by practicing these, and these alone, for a 
great length of time, they at last attain to a proficiency 
which, to a spectator, is incomprehensible. 

5. Division of labor suggests the contrivance of tools 
for the performance of the operation in which it is em- 
ployed. 

The more completely any process is analyzed, the sim- 
nler must become the individual operations of which it it 
composed ; and the simpler any operation is, the easier is 
it to contrive a tool or an adjustment by which it may be 
performed. Adam Smith informs us, that in the fi.vst 
steam engines, boys were constantly employed to open a 
communication between the boiler and cylinder, according 
as the piston ascended or descended. One of these boys 
observed, that, by uniting the handle of the valve which 
opened this communication with another part of the ma- 
chine, the valve would open and shut without his assist- 
dnce and leave him at liberty to play with his fellows 
One of the most important improvements of this machiuu 
was thus by division of labor, brought within the capacity 
uf a playful boy. It would have been very difficult to 
invent machinery for the making of nails, when all the 
processes were considered as a complicated whole. Bu^ 
after the several operations are divided and are assigned tc 



DiyiSIO^fl- OF LABOIt. 56 

individuals separately, it becomes comparatively easy to 
constnict an adjustment by which any of them, singly, 
could be performed. This is tiie first step in invention. 
But this is not all. After these several sing"le instruments 
aa^e been invented, the next step is to combine them to- 
gether. This is the most finished effort of mechanical 
geniusL This is the principal diiferenca between a tool 
and a machine. A tool performs one single operation ; a 
machine combines several tools together, and accomplishes 
either the whole, or a considerable part of a complicated 
process. 

G. Every one at all acquainted v/itli manufacturing 
employments, must have observed that some of the opera- 
tions in a given process, require greater muscular power or 
greater skill or greater dexterity than others. Some, for 
instance, can be performed only by the most experienced 
workmen, while others can be perfectly well performed by 
children. Now, by division of labor a manufacturer is 
enabled to employ upon each operation precisely tlie labor 
xdapted to it, and is obliged to pay for each portion of the 
labor no more than it is actually worth. This must greatly 
diminish the cost of production. Thus, the manufacture 
of pins is divided into ten different operations, and each 
operation employs one laborer. But some of those laborers 
are men ; others are women and children ; and their wages 
vary from six shillings to four and a half pence sterling a 
flay. If the labor were not divided, one person must 
nndorstand the w^hole process, and therefore, must be em- 
ployed at the highest price of labor ; and hence, he must 
be paid at the rate of six shillings a day for that part of 
the work which is worth only four and a half pence a day. 
Every one must see that this would greatly increase the 
price of pins, and also occasion a great deficiency in labor. 
It is by this means, also, that occupation is provided foj 
the weak and the aged, for females and for children wlie 



56 PEODLCTION. 

would otherwise be unable to earn any thing. Thus, all 
the labor of the community is rendered productive, and an 
immense amount is annually added to the reyenue of a 
'ountry. Nor is the gain to be estimated at simply what 
8 thus earned. The whole community is thus acqrlring 
those habits of industry and self-dependence, wh.ch are 
essential to its happiness and well-being, no less than to 
the rapid accumulation of its capital. 

Nor are the benefits of the division of labor confined to 
mechanical processes. The results have been equally inter- 
esting in those cases where this principle has been applied 
to intellectual labor. The effect of such a division is seen 
in the following account, which is introduced here, not 
only because it very happily illustrates this whole subject, 
but also because it may suggest to scientific men some 
other cases in which it may be again applied with similai 
oenefit. 

'* During the period of the French Revolution, the government 
was desirous of producing a series of mathematical tables, in order 
to facilitate the extension of the decimal system, which had been 
recently adopted. They directed their mathematicians to con- 
struct such tables on the most extensive scale. The superintend- 
ence of the work was confided to M. Prony. It happened that 
shortly after he had undertaken it, he opened in a bookstore 
Adam Smith's "Wealth of Nations," and, by accident, turned 
to the chapter on division of labor. The thought immediiately 
suggested itself that this might be adopted in the work in which 
he was engaged. He immediately followed out the suggestion, 
nnd arranged his plan accordingly. He divided the persons );\ bo 
were to execute the labor into three sections : 

The first section was composed of five or six of the most emi- 
nent mathematicians of France. Their duty was to ascertain t bo 
analytical expressions which were most readily adapted to simple 
numerical calculation, and which could be performed by many 
individuals employed at the same time. The formulae on tlic use of 
which it had decided, were to be delivered to the second section 



DITISIOlff OF LABOK. 5? 

7%e second section consisted of seven or eight per. ions of con aid' 
erable acquaintance with mathematics, whose duty it was to coa- 
rort into numbers the formulas put into their hands by the firgt 
section ; and then to deliver out these numbers to the members of 
the third section, and to receive from them the finished calcula- 
tions. These they could verify without repeating the work. 

The third section consisted of sixty or eighty persons. They 
deceived the numbers from the second section, and, using nothing 
more than addition and subtraction, returned to that section the 
finisLed tables. Nine-tenths of this class had no knowledge of 
arithmetic beyond its first two rules ; and it is remarkable that 
these were usually found more correct in their calculations thas 
those who possessed a more extensive knowledge of the subject. 
The extent of the labor which was thus executed in a remarkably 
short space of time, may be estimated when it is stated that the 
tables thus formed are computed to occupy seventeen large folio 
volumes. And yet we see that the greatest part of the labor waa 
actually accomplished by persons who might be employed at vety 
small expense, and who could do the work assigned them as xxsr* 
fectly as those whose labor was the most expensive. 

* !^bbage on Economy of MacMnerFi 



CHAPTER VII. 



OMITATIOXS TO THE DIVISION OP LABOfl 

The principle so beneficial in its varied application, ig 
limited by certain conditions which cannot be set aside. 
We may notice four such restrictions. 

1, Tliat ivliicli comes from the Nature of the Process, 
Every process can be analyzed into its ultimate elements; 
that is, into the various simple processes of which it ia 
composed. Thus in pin-making the straightening of the 
wire is one operation, the cutting it into equal lengths is 
another, the sharpening of the points is another, the head- 
ing of the pin is another, etc. But when we have reduced 
the operation to its simple elements we can proceed no 
*urther. Hence, here is our necessary limit ; for it is 7io 
division of labor to employ two men to perform precisely 
the same operation. Hence an establishment which car- 
ries division to this limit, will be able from what has been 
said, to undersell another which does not carry it t.) the 
eame degree of perfection. And hence, in establishing 
a manufactory, it is important so to adjust the number 
and kind of workmen, that, when the different operations 
of a process have been assigned to different persons, these 
versons may he in such proportions as exactly and fully to 
eTiiploy each other. The more perfectly this is accomplished 
the greater will be the economy. And, this having been 
once ascertained, it is also evident that the establishment 



LIMITATION'S TO DIVISION OF LABOR. 59 

pjLinot be successfully enlarged, unless it employ multiples 
oi i:his number of workmen. 

2. Division of labor way he limited hy Deficiency of 
Capital. Division of labor in manufactures, cannot be 
carried on unless the proprietor have sufficient capital to 
employ, at the same time, all the persons necessary to such 
ft division, and to keep them so employed until the pro 
coeds of their work enable him to furnish them agfain with 
fresh material. This is of course a considerable outlay, 
and supposes a considerable accumulation of the proceeds 
of pre-exerted industry. Hence, in a jjoor or in a new coun- 
try, there can he hut little division of labor. No one has 
more than enough capital to employ himself, and, perhaps 
one or two laborers ; and hence each individual performs 
all the operations of each process, and fi'cquently those of 
several processes. The same individual is the farrier, 
blacksmith, cutler, and perhaps wheelwright, for a whole 
settlement. To illustmte tliis by a single instance : If a 
nailer be able to purchase no larger amount of iron and 
coal than he can use in the manufacture of nails in a day 
he must perform all tlie parts of tlie process himself ; and 
of course must labor very disadvantageously. As soon 
however, as he is able to double his capital, he may employ 
another person to work with him, and they may then in- 
troduce a division of labor. When he has tripled his caj)i- 
tal he may employ another workman and carry his division 
gtill further. He may thus go on until he has reduced the 
process to its simplest elements. When he has gone thus 
far, the accumulation of his annual capital will enable Lim 
to invest something in fixed capital. He will thus be able 
to purchase some of the simpler machines by which some 
of the parts of his process may be executed. To these ho 
will add others as he advances in wealth, until his accumu- 
lated means enable him to combine them into one machine 
for completing the whole process. Thus he becomes a 



60 PEODUCTION-. 

manufacturer, and derives the larger part of his revenue 
trom the use of his fixed capital. At every step his gaina 
will be greater, and at the same time the price of his pro« 
duct will become less. It is not pretended that all these 
changes always, or frequently, take place within the life- 
time of a single individual. The progress of society is not 
generally so rapid. Yet thej sometimes occur in the man- 
ner stated. The illustration shows the tendency of things. 
But whether the results are comprised in the life-time of 
one, two, or three individuals, the principle is the same. 

3. Division of labor may ie limited hn the Demand fo? 
the article produced. Suppose that, in a given district, 
there is a demand for one hundred pounds of nails per day 
and that these can be made by two men. If three men 
could, by division of labor, make two hundred ^^ounds per 
day there would be but small gain either to tlie workmen 
ar to the public ; because these men Avould of course lie 
idle half of the time, and for this time they must be paid 
as well as for the time in which they are employed. Or, 
If they did not lie absolutely idle, that portion of the time 
which was employed on other labor would be of compara- 
tively small value ; and they by attending to other busi 
ness, would lose the skill which complete division of laboi 
confers, and which is one of its jorincipal benefits. The 
case is still stronger, if we take into view the fact that 
division of labor supposes a large investment of fixed capi- 
tal, and that those who are educated to any manufacturing 
business, can rarely employ themselves upon any thing 
else. If the laborers at any of our manufactories were 
employed only half the time their wages must be doubled 
for their families must be supported one day as well aa 
another, and thus the interest of the whole investment 
must be charged upon half the quantity of product. These 
causes together with the loss of skill in workmen, would 
more than double the price of products, and would of no 



LxiflTATIONS TO DIVISION OF LABOB, 61 

cessity, carry back the division of labor to its loss peifoci 
Etate. 

But this demand must depend upon scTeral ciiicam- 
stances. The most important of these are the folloTving : 

a. The Ntimher of the Consumers. When the number 
of inhabitants is small as in a new settled countiy, or in 
an isolated situation, the demand must of course corre- 
spond to their number. One hundred men will requhe 
but one- tenth as many hats or shoes as one thousand men. 
Tt is on this account that wealth accumulates most rapidly 
on navigable waters, because the market of the producers 
is not limited to themselves, but may be easily extended 
to other places. 

h. The Wealth of the inhaMtants. Demand does not 
signify simple desire for an article, but desire for it 
combined with the ability and icilUngness to give for it 
what will remunerate the producer. Hence, the greater 
the ability in a given population to remunerate tlie pro- 
ducer, the greater will be the demand. The demand for 
nats in a population of oue thousand men, would be lim- 
ited to those persons in that population who luere ahle to 
luy a hat. The larger the proportion of such individuals, 
the better it would be for the hatter and for every otha- 
producer. Hence we see that every individual is inter- 
ested in the prosperity of every other individual in the 
community, 

c, Th6 Cost of the article. The greater the cost of 
the product, the smaller will be the number of persona 
who are able to purchase it. Hence the less will be the 
demand ; and hence, also, the less opportunity will then 
be for division of labor. And besides the greater the cost 
of the article, the greater amount of capital is required in 
order to produce it by division of labor. Uen?e, thia 
cause operates in two ways to prevent the employment of 
this means of eUccting the reduction of price. Thus if a 



62 PEODUCnON. 

community consist of one thousand men, and of these one 
hundred be worth one thousand dollars per year ; four 
hundred be worth five hundred dollars ; and the remain- 
der be worth but two hundred and fifty dollars per year ; 
and an article be produced within the reach of only the 
first of these classes, it can have but one hundred pur» 
chasers ; if it come within the reach of the second class, it 
will have five hundred ; and if it come within the reach 
of the third class, it will have one thousand purchasers. 
Hence it is that division of labor is but sparingly used in 
the manufacture of rich jewelry, and in articles of expeu- 
(jive luxury ; while it is so universally used in the production 
of all articles of common use. Hence we see, that the 
benefits of the use of natural agents and of division o- 
labor, are vastly greater and more important to the mid- 
dling and poorer classes, than to the rich. These means 
of increased production, reduce the cost of the nccessariea 
and of the essential conveniences of Ufa to the lowest rate^ 
and of course bring them, as far as possible, within the 
reach of all. 

d. Facilities of Transportation. This is evident, 
from what has been said. The cost of an article depends 
not only on the cost of its original production, but also 
npon tlie cost necessary to bring it to the consumer. Coal 
itnay be very chea]) at a coal mine, but if it must be borne 
i)n the shoulders of men to tlie consumer, it would at a 
few miles from the mine become so dear that no one would 
be able to use it. The demand would be so small that 
there would be no profit either in investing capital in the 
machiner/, or in emjUoying division of labor to raise it 
from the mine. But if horses be used to transport it to 
the consumer, the demand will increase. Again, if foi 
horses, canals and railroads be substituted, it will become 
cheap, and the demand will increase still more ; and, with 
©Tery such improvement that circle of consumption ex 



LIMITAnONS TO DITISIOK OF LABOB. 68 

paiids, of which the mine is the centre. The same princi' 
pie applies to manufactures, specially those of iron oi 
hedvy ware, and it applies just in proportion as transpor- 
tation forms a large or small part of the cost to the coa* 
gumer. And thus, in general, we see the principle on 
which facilities for internal communication improve the 
condition of both the other branches of industry. For thia 
reason the price of Imd and grain rises in a district through 
which a canal or a railroad passes ; and for the same rea- 
son manufactories may at one time be successfully estab- 
lished in situations where they at another time would have 
been useless, if not ruinous to the proprietor. And stiL 
more generally, we see the manner in which all the branches 
of labor assist each other. A railroad or a canal can never 
profitably be constructed in a country where there is noth- 
ing to be transported. But where agriculture, manufac- 
tures and commerce are productive, and hence require a 
l&rge amount of transportation, there these facilities are 
immediately in demand. Were Liverpool and Manchester 
to decline, of what use would be the railroad between 
them ? And, on the other hand the railroad between 
them, by reducing the cost of all articles bought and sold, 
diminishes the cost of living in both places, enables the 
producer to come into market with greater advantages, in 
creases the profits m all kinds of industry, facilitates the 
accumulation of capital and thus adds greatly to the annual 
revenue of both cities. 

4. 77ie Division of Labor is li7nited also by iJie Execii 
Uve capacity of man. In every large establishment there 
must be one person at the head, whose supervision must be 
felt in all departments, to hold every one employed to strict 
rGsponsibility and fidelity in his particular service. Ilia 
judgment must determine a thousand questions respecting 
both general results and detailed operations. And his will 
must pervade the whole system of divided labor, as a gfuida 



84 PEODUcnoK. 

and stimulus to many subordinate wills, that all may worlk 
in harmony for a common end. The qualities which lit 
one for these exercises we call executive capacity. The 
guccessful management of a gi'eat manufactory thus re- 
quires talents of tlie highest order. But in the man most 
highly endowed, there is a limit of hotli capacity and en- 
durance. Theoretically, it would be an advantage to have 
the entire industry of a state perfectly systematized on the 
princi]")le of division of labor. But no one human head 
would be equal to the supervision and control essential to 
the harmony and success of such an arrangement. We 
have frequent and sad instances of minds deranged, of 
Jives sacrificed and of great enterprises wrecked by an ex- 
pansion of business beyond the capacity of the manager'a 
mind. In tliese days, this limitation of the principle 
under consideration is too little regarded. 

Evils incident to the Application of this Prin- 
ciple.— Under the division of labor so advantageous in 
most respects, there are liabilities and tendencies to evil 
which must be noticed. We mention 

1. The Danger of impairing ])hysical Health and Vigor, 
A variety of exercise is essential to the full and healthful 
development of the faculties and functions of the body. 
But the division of labor often involves long and close con- 
finement to a single operation — an overtasking of some one 
limb or set of muscles — a posture which may cramp and 
0])press the vital organs — exposure to deleterious gases and 
exhalations — the breathing for hours in crowded rooms of 
%\y bereft of oxygen and charged with carbonic acid. It 
offers also strong temptations to the confinement ana 
Bevere labor of children not yet grown, by which their 
bodies are depressed and their lives are shortened. The 
ntal statistics of large manufacturing towns present too 
many painful facts illustrating this evil. There is a real 



EVILS INCIDENI TO DIVISION OF LABOR. 65 

danger liere, but it may be in great measure counteracted 
by the careful study of sanitar}- measures. Wise economy 
dictates the introduction and use, even at some expense, 
of appliances which secure to laborers of every kind pure 
air and varied physical exercise. 

2. The mind is liaUe to he Contracted and Enfeebled* 
When one's attention and energies are all absorbed in s 
minute operation, such as sharpening pins or counting 
buttons by a machine, the free development of the mind 
is likely to be cramped and hindered. This liability must 
be recognized. It is however relieved in part by the law 
•)f habit, inherent in the very constitution of the mind. 
Under this law, the mind's action in the particular opera- 
tion by constant exercise runs on almost unconsciously 
with the machine, as though identified with it, and the 
other faculties are free to be engaged about other matters ; 
just as when walking, while each step really requires an 
exercise of attention, judgment and will, the whole action 
is so much a matter of habit that the mind is free for the 
exercise of fancy or profound thought on a wide range. 
Moreover, the association of numbers in large establish- 
ments, gives scope for the introduction of means of intel- 
lectual improvement, such as schools, lyceums, reading 
rooms and lectures which may effectually counteract this 
tendency, and become a real advantage to the whole com- 
munity of laborers. 

3. The Division of Labor may involve some loss of In- 
Jependence and Self-Respect. It diminishes the numbers 
■)f those who manage business for themselves and thus 
throws into the class of workmen dependent on wages, 
many capable and worthy men whose manliness and char- 
acter would be better developed, and whose chances foi 
acquiring wealth would be greater under the responsibility 
of a business of their own. In large establishments, also, 
the fate of a great body of workmen hangs on the succesa 



$6 PBODUCTIOS". 

or failure of a few managers and capitAlists. The failnre 
of a single manufacturing company thus involves a sweej)- 
ing disaster, and the mischiefs of a general financial crisLi 
are aggravated as all are involved together. This evil ma| 
be relieved by devices for giving employes a personal ir 
tcrest in the business and by a system of promotion to 
higher and more responsible trusts on tiie ground of fide! 
ity and efiicienc3^ There can be no doubt that on the 
whole, the average condition and prospects of working men 
fire improved by the systematic arrangement which under 
tne principle of division of labor prevails in large industrial. 
establishments. 

4. The piH^icipIe of division of labor favors comMnar 
tions and strikes, as it brings together and holds in inti- 
mate association, as a class, great numbers of dependent 
*nd often unintelligent workmen. We only mention thia 
'tem in this connection. The full discussion of this topic 
Belongs to the third division of our science — distribution, 
and will there be treated at some length. 

These incidental evils are greatly overbalanced by the 
advantages which proceed from the application of this law. 
Yet they are of importance enough to deserve serious con ' 
sideration and to engage earnest study to devise means for 
their relief. Far-seeing self-interest, no less than the spirit 
of philanthropy prompts to such study and such elforts. 

International Division of Labor. — This phase 
<ji our subject demands some special notice and illustration. 

It is manifest that the diiferent portions of the same 
countiy possess different facilities for producing Llio objects 
of human desire. Ko district possesses advantages for 
producing everything ; but almost every district possesses 
peculiar facilities for producing something. Kuw, natural 
adva7itaoes are clearly nothing more than means of in- 
created vroauctiveness of labor in the creation of any par- 



INTEKNATIONAL DIVISI0I5r OF LABOR. 6t 

ticnlar product. If one soil will produce forty bushels o{ 
wheat to the acre, with the same labor that another will 
produce twenty, the labor upon the first is twice as pro- 
ductiye as that upon the second ; that is, the owner of ihQ 
one has a machine oy which he can, with the same labor, 
produce twice as mnnh as his neighbor. But perhaps the 
soil wdiich will produce only twenty bushels of wheat, will 
produce forty busheis of corn per acre, while the other 
soil will produce only twenty. This second soil is there- 
fore an instrument which gives a double productiveness to 
labor in the raisinsr of corn. Now it is manifest that if 
^iach one devotes himself to the production of that for 
fl^hich nature has given him peculiar facilities, his amount 
of production will be greater, he will himself be richer, and 
the whole community will be supplied at a diminished cost. 
Suppose that each occupied twenty acres, and each pro- 
duced the crop for which he had the greater advantages 
the result would be 20x40=800 of wheat, and the same 
of corn ; =800 bushels of wheat and 800 of corn. Suppose 
again they divided their crops, and each appropriated ten. 
acres to wheat and ten to corn ; the result would be 
^0x40=400 of wheat, and 10x20=200 of corn; and 
^0X40=400 of corn, and 10x20=200 of wheat ; that is, 
600 of wheat and 600 of corn ; that is, there would be 600 
instead of 800 bushels of each raised, and the loss to both 
and to the community wc uld be 200 bushels of each a year. 
By so much would thoy both be poorer than by devoting 
themselves wholly to that product for which each had the 
greatest natural advantages. 

Or, to take another case. Suppose one district rich in 
soil and adapted to the production of wheat, but level and 
far inland, and therefore unadapted by por3ition and want 
of the proper natural agents, to the production of manu' 
factures ; and another district on the sea-board hiiiy and 
sterile, adfjptcd to manufactures but unadapted to the cul- 



68 PEODUcnoN. 

tare of wheat. On the first, with one day's labor, a man 
may raise two bushels of wheat, but could produce but foui 
yards of cloth. On the other, by the same labor, a man 
Ciin produce twelve yards of cloth, but can raise only one 
jushel of wheat. Now it is manifest that by each district's 
devoting its labor to that kind of production for which it 
h;is the greatest natural facilities, the production of the 
whole country will be increased. It is also evident that a 
man in the wheat district will provide himself with cloth 
at a cheaper rate by raising wheat and procuring cloth by 
exchange, than by manufacturing it himself ; and on the 
other hand, that the manufacturer will provide himself 
with wheat at a much cheaper rate by making cloth, than 
by raising wheat himself. Thus by this form of division 
of labor, the productive power of both is increased ; theii 
desires are gratified at the expense of less labor ; and thus 
both are rendered richer and happier. 

All this seems obvious, if only the several districts of 
the same countrv be compared. And it is obvious, becausp. 
every one perceives that God has bestowed upon different 
districts of the same country different advantages, which 
it is for the interest of that country that each district 
should improve to the utmost. But every one may see 
that the same principles apply to different natmis inhabit- 
ing the different quarters of the globe. The separation of 
the earth into warring nations, is nothing but the arbitrary 
work of man ; it alters neither 1 he qualities nor the rela- 
tions which God has given to things, nor the laws under 
which he has constituted man. If a man own a farm of 
which one part is suited only to tillage, and another part 
only to grazing, and he divide it and sell the pasture land 
to his neighbor ; this iocs not alter the nature of the 
soil. Will it not be just as profitable to appropriate each 
part to the purpose foi which God designed it, after the 
purchase as before ? 



IlSTEKNATIOlf AL DIYISIOiq" 01 LABOE. 69 

Every man needs^ for the gratification of his innocent 
(leaires, nay, for his conyeniences and even necessaries, tlit 
productions of every part of the globe. To be convinced ol 
this, we have only to enumerate the articles which furnish 
■)ur houses, the food that covers our tables, and the rai- 
nent which clothes our bodies. IIow greatly would all 
our means of happiness be diminished, were we deprived 
of the iron, the furs, and the hemp of the North ; the cof- 
fee, teas, sugar, rice, fruits, and spices of the South ; or 
the w^ool, the wheat and the manufactures of temperate 
climates. Every one must be convinced that the happinesa 
yi BYerj man is increased in proportion as he is furnished 
vvith the greatest number of these objects of desire ; anJ 
furnished -with them in their greatest perfection and at the 
cheapest rate. 

But it is evidently the will of our Creator, that but few 
of these objects, every one of which is necessary to the 
happiness of every individual, should be produced excejit 
in particular districts. Others, if they can be produced 
in several places, can be produced much more cheaply, and 
in greater perfection in some places than in others. Every 
part of the globe possesses peculiar advantages for the pro- 
duction of something J but no part possesses advantages for 
the production of every thing. Hence we see on the prin- 
ciple illustrated above, that the annual production of the 
globe will be greatest ; that is, there will be the largest 
amount falling annually to the share of every individual ; 
that is, every individual will be richer and happier, when 
each portion of the globe devotes itself to the creation of 
those products for tvhich it has the gi-ecdest natural faoili' 
ties. If a man in New York can produce by one day's 
labor, one hundred pounds of flour, but could not produce 
more than one ounce of coffee ; and a man in Cuba can 
produce twenty-five pounds of coffee, but cannot produce 
more than one pound of flour, and they exchange as we 



"to PRODUCTION. 

have bftfore seen they must exchange, /abor for labor ; the 

one wil] produce by a day's labor twentv-five pounds of cof- 
fee instead of an ounce ; and the other one hundred pounia 
jf Dour instead of a pound. Is not this better than iol 
♦.he New York farmer to raise his coffee in a hot-house, 
at the expense of a day's labor for an ounce ; and the 
W^est Indian to raise his wheat on the mountains, at the 
expense of a day's labor for a pound ? Such are the advan- 
tages of that division of labor suggested hy Geographical 
Position. 

And the Final Cause of all this is evident. God in- 
tended that men should live together in friendship and 
harmony. By thus multiplying indefinitely their wants, 
and creating only in particular localities the objects by 
which those wants can be supplied, he intended to make 
them all necessary to each other, and thus to render it no 
xcss the interest than the duty of every one, to live in 
amity with all the rest. 

Nor is the application of this principle confined to 
geographical localities. The simple fact that a nation 
nossesses facilities, be they either natural or acqttired, for 
creating any product at a cheaper rate than any othe? 
nation, is a reason why that nation should devote itself to 
the creation of that product ; and why another nation 
should for the £ame reason improve its own peculiar ad- 
vantages. Thus, there are certain states of society, and a 
certain am.ount of accttmulation of capital, most favorable 
to the creation of certain products. A nation in this State 
and with this accumulation, can furnish these products 
cheaper than her neighbors ; and this is a reason why they 
should purchase them of her. Could not one of our old 
States supply one of the new States with manufactures, 
cheaper than the new State could produce them herself ? 
And is this not a reason why the new State should procure 
them by exchange rather than by direct production ? la 



nrTEEXATIONAL DIVISION OF LABOE. 71 

it not cheaper for an Indian to buy a rifle of an European 
than to attempt to make one for himself ? 

This is however by no means to assert that such ar- 
rangements and relations are to be permanent. As a 
country accumulates fixed capital, it creates its own facili- 
ties for creating almost every kind of manufactured \ ro 
duct. One nation will naturally begin to do this at thi 
same point of accumulation at which another began to do 
it. And the way in which to arrive at this point the 
Boonest, is to hecome rich as fast as possible ; that is, to buy 
as cheap as we can, or in other woi-ds to procure annually 
as many objects of desire as possible, for a given amount 
of labor. A tribe of Indians would much sooner be able 
'x) make rifles for itself, by purchasing at first rifles of an 
Europeau, than by determining that it would never use 
rifles until it could manufacture them for itself. As the 
use of a rifle would render industry more productive, and 
thus render the tribe richer, it would bring them one step 
nearer to that degree of accumulation at which they might 
vegin to make rifles for themselves. But the resolution 
not to purchase of others would have no such tendency, 
inasmuch as it would do nothing whatever toward accumu- 
lating production ; but would on the contrary, shut them 
out from the very means offered them for most rapidly 
benefiting their condition. 

To sum up what has been said. It will be seen that 
production will be increased ; that is, men will be richer 
and therefore may be happier, as the following conditions 
are complied with : 

1. As the laws of nature, designed by our Creator for 
our benefit, are understood ; 

2. As the means are devised for availing ourselves 
in the most successful manner, of the utility of these 
laws ; 

3 As the human labor necessary to be expended u bc 



73 PEODUCTIOK". 

arranged as, with a given expenditure, to produce the 
greatest and most perfect result ; and 

4. As the inhabitants of the earth in different local i* 
ties, devote themselves most exclusively to the production 
of those objects of desire, for the production of which they 
have received, either directly or indirectly, from theil 
Creator, the greatest facilities. 

Or, still more generally, production will be abundant ; 
that is, man will enjoy the means of physical happinesa 
in proportion to his individual industry, both of body and 
mind ; and to the degree of harmony and good feeling 
whLch exists between the individuals of the same society 
Mkd also betwe-en the different societies then selves. 



CHAPTER VIII 



CAPITAL. 



Ilfi Deiiiiliion. — Capital is that part of Wealth wJiic 
u oniployed in Production, The word is often used 
vaguely and with, diverse meanings. We need to adhere 
to a strict definition. The generic idea is, as stated, 
wealth set apart to be consumed in the reproductiori o* 
wealth. The technical use of the term always has refer- 
ence to Production. 

All capital is wealth, hut all wealth is not capital. 
Suppose a farmer's crop this year gives him a hundred 
bushels of wheat to spare. He may exchange this surplus 
for gold, and bury the gold for safe-keeping. That gold 
is wealth, but it is not capital ; for while buried it can 
contribute nothing to the further production of wealth. 
He may exchange his wheat for a beautiful painting to 
adorn his home. The picture is still wealth, but, hanging 
on the wall, it will do nothing to increase the next year's 
crop — it is not capital. He may exchange his surplus of 
wheat for a horse, or for labor in clearing and draining 
another field. Xow the wheat is gone and the money ia 
gone, but the wealth is still his, in the horse or in the im- 
proved land, turned into means for the production of 
larger crop next year ; that is, he has turned this part Ox 
his wealth into Cajntal, 

Capital is not syno7iymous with Money, as too many 
gup])0se. The money for which the farmer -sold his wheat, 
while simply hoarded, is wholly withdrawn from produc- 



74 PRODUCTION. 

tion, and though he may think himself rich in itf ^ /gsea 
sion, it is not capital for him or anybody else. If ue holds 
it as a fund for the payment of laborers' wages and the 
purchase of implements next year, it is prospective capital 
and may be all that will be required for these purposes ; 
but as money, it cannot itself assist his production. AVhat 
he wants is what the money will buy, and in ^ny yiew, it 
constitutes but a small part of his real capiti.i. His land, 
his buildings, his live-stock and his tools, make up the 
bulk of his capital. So money in circulation as an instru- 
ment of exchange, performs an important function in th(3 
productive industry of a country, as will hereafter bo 
shown. But in the case of an individual, or a joint-stock 
company, in a community or a nation, though the whole 
capital is estimated in terms of money, the money in hand 
amounts to very little in proportion to the capital, in other 
forms, actually in use. 

The Origin of Capital. — Capiial is always ilw 
fruit of 'oast labor, saved. A farmer's boy once received as 
a reward for a bit of work, the gift of an ewe-lamb. It 
was the first thing he ever earned. lie might have sold 
ihe lamb to a butcher and spent the avails for his imme- 
diate gratification. Instead of that, he kept his lamb and 
cared for her and her young. The clip of wool and the 
natural increase from year to year, were saved in like man- 
ner, till he came into possession of a valuable flock. In 
due time he sold the flock, and with the avails commenced 
business as a merchant.. Maintaining still the habit of hia 
yoath, he labored diligently, and saving the profits, stead- 
ily added to his capital, till he stood in the foremost 
rank of the merchant princes of New York, using a vast 
capital to combine the industries of two continents. The 
*amb, the first fruit of his labor, saved, was the beginning 
of his capital — the nucleus of his siibsequent fortune. 



THE ORIGIN OF CAPITAL. 75 

Sach is universally the origin and the growth of capital. 
It begins in saving and grows by the contiDaed exercise ol 
industry and frugality. Labor produces wealth. That 
portion of wealth which is saved from consumption for 
immediate gratification and appropriated to increase future 
p.-oducts, is capital. The term can properly be applied to 
nothing else. 

Even the savage will spend some labor in making a 
bow and arrows that he may obtain larger returns from 
hunting. But he accumulates little or no capital beyond 
this, simply because he is i7idolGnt, thriftless and self-in- 
dulgent. He will work only when the necessity of the 
hour compels him to do so. He consumes the fruit of his 
labor at onoe, on present gratification, reckless of future 
needs. His first step toward civilization is to learn fore- 
tliouglU and self-denial — a hard lesson always with most 
civilized men, as well as with savages. The hardest thing 
about it is to make a beginning. The first step taken, 
there is a joy in conscious possession and a hope of accumu 
lating more which give zest to further effort till the exer- 
cise screws into a haBit and sometimes into a morbid pas- 
sion. To provide facilities for guarding and utilizing the 
smallest savings and to encourage all to exercise self-restraint 
and forethought with reference to a future good, are im- 
portant means for increasing capital and enlarging the 
production of wealth. 

But we need to emphasize this principle in one aspect 
of it. Many are disposed to think of Lahor and Capital 
as things quite diverse in their nature and necessarily art' 
agonist ical in their respective interests. But as we see, 
he truth is that capital is nothing but past laior emlodied 
and reserved for present lahor to luorh luitli. They are 
indispensable to each other, and in the processes of pro- 
duction must always combine for a commoD end. What- 
e?er injures either works a common damage — whatever in- 



76 PRODUCTION. 

creases the efficiency of either works a common benefit. 
When the representatives of these two natural partners in 
production are arrayed against each other, there must be 
something radically false and wrong in prevalent popular 
sentiment, or in the social organization. 

Forms of Capital. — The products of previous laboi 
a])pear as capital in four distinct forms. 

1. In the form of Materials to which present labor is tt 
he applied. The farmer must have seed, manure, breeding 
animals, etc., which by labor must be put into fit condi- 
tions for the processes of Transmutation to produce in- 
crease. The manufacturer must have lumber, cotton, 
iron, wool, leather, etc., which labor shall Transform into 
articles adapted to men's comfort and gratification. The 
merchant's materials are the goods which make up his 
stock, by Transportation to be brought, with increased 
value, within convenient reach of those who desire them. 
Obviously, all these things are the products of former 
labor, on which present labor works to increase value and 
swell the sum of wealth. 

2. Capital takes the form of Implements and Machinery 
by which present labor is made effective. A man's hands 
and limbs and muscles alone can do little or nothing with 
the materials just named. The farmer must have ploughs 
and carts, divers tools, machines, working animals, etc. 
In this category also must be included the land, wbieli is 
his great instrument of production. The mechanic must 
have axes, planes, hammers, a full chest of tools, and the 
manufacturer, engines to create momentum and ingenioua 
and complicated machines for directing it in adjustment to 
the materials employed and the articles to be produced. To 
this division belong also the teamster's wagon, the mer- 
chant's ship, the entire structure and rolling-stock of the 
railway company, and whatever facilitates the transports- 



FORM? OF CAPITAL. 7? 

don of goods, their exhibition for sale and the financial 
negotiations of every sort incident to the transfer of com- 
modities from producers to consumers. All these arc tho 
products of past labor, infinitely varied. As the introduc- 
tion of natural agents and divisiouof labor to increase pro 
ductiveness is extended, the amount of capital employed ia 
this form is increased, and production in almost all de- 
partments is thrown into large establishments. The 
power-loom makes one man's labor equal to that of ten 
with the old hand-loom, and hence the independent weaver 
has no chance in competition with the great factory. 

3. Capital talces the form of Means of Sustenance for 
laborers. Present labor does not yield immediately the 
food and clothing necessary to keep the laborer alive. 
The crops of last year must provide for tlie support of th9 
farmer and his help, while this year's crops are maturing. 
Out of the proceeds of previous industry, both the manu- 
facturer and the merchant must furnish present means of 
nving for all in their employ. Under this head must be 
embraced therefore, the houses and all the various kinds 
of clothing and food necessary to protect and sustain men 
while at work, and to provide for the comfort of their fami- 
lies. We can suppose an establishment, set up complete 
m itself, so that tenements and rations of food and cloth- 
ing are directly supplied to those who carry on its opera- 
tions. But ordinarily these items are provided for in de- 
tail by the laborers themselves out of their tuages. Nev- 
ertheless, the fund for the payment of wages is an essential 
part of the capital and comes always from the proceeds of 
previous labor. If, as is often the case, by the use of credit, 
the product of present labor is anticipated for these pur- 
poses, the fact is still the same. What is actually con- 
sumed to sustain the workmen is the fruit of previous labor 
borrowed for the time. 

4. For a longer or shorter period, as the process of pro- 



73 PBODUcnoN. 

dnction goes on, more or less of Capital takes tlie form of 
Finished Products^ waiting for a market. The process oi 
production is not completed till the products pass out of 
Ihe producer's hands. Commonly, the farmer will lirid it 
*or his convenience or advantage not to dispose of his crop 
s soon as it is gathered. While he holds it back from 
ale, it is capital in his hands, just as truly as his barn a 
and tools are. Sometimes business is so active that a man- 
ufacturer's orders will be in advance of his production, but 
oftener he must hold a portion of his products waiting 
orders. It would be bad economy to suspend operations 
and keep both labor and capital, in other forms, idle till a 
purchaser appears, when there is a tolerable certainty that 
the product will in due time find a market. Therefore, 
in estimating the amount of capital required to carry on 
any line of productive industry, some allowance must be 
made for the value of the products which must thus be 
carried for a time. 

In some or all of these four forms, all actual capital 
exists ; and in civilized society, no kind of production can 
go on without something in these forms as capital. Even 
the wood-chopper must have his axe, the clothes he wears 
and something to eat for the day, all the fruit of previous 
labor, before he can go forth to his simple work. The 
blacksmith who works alone, capitalist and laborer, both 
in one, must have some iron for material, forge and anvil, 
hatamer and tongs for instruments, a home for his shelter, 
bread and meat for food, and a few finished horse-shoea 
hanging in his window ready for the first call. So like- 
wise, the millions of capital invested in the great Tacifie 
mills of Lawrence maybe all resolved into these four forms, 
or temporarily, in small part, their money-representative. 
Banlcing capital will be considered at length in anothei 
.'onnection. Since much of it is directly concerned in 
production, however, it may relieve a question arising in 



CONSUMPTIOi^ OF CAPITAL. 79 

some mind, to say a few words concerniAg it here. A 
bank is simply a credit-agency. When a manufacturer la 
out of cotton, or wants a new engine, or lacks means foi 
the sustenance of h^s employes, he might borrow what 
h^ needs directly of the cotton-broker, or of the machinist 
or Df the farmer, but it is often more convenient to 
borrcvv money of the bank and with it purchase those 
things. But the money is exchanged at once for the 
things wanted, and so its value really goes into production 
in one or other of the forms named. Then the note left 
at the bank means that so much of the capital as is thus 
borrowed, belongs not to the manufacturer but to the 
banking company. So far as the capital of the' bank is 
represented by such notes, it is employed in production in 
the forms mentioned ; and the bank as a credit-agency 
simply effects a partnership of different persons for pro- 
ducing certain articles. The act of borrowing and lending 
has added nothing to the sum total of capital. It has only 
served to distribute existing capital for profitable use. 
Banks, therefore, are store-houses for the safe keeping and 
ready distribution of money, the instrument of exchange. 
Their capital renders an important service to productive 
industry through its entire range, and really comprises the 
greater part of the active productive capital of a commu- 
nity which exists in the form of money. Yet as money, it 
is a simple instrumeyit, and belongs to our second division, 
just as a wagon or a plough does. 

The Consumption of Capital.— According to ouj 
delinition, capital is wealth set apart to be destroyed for 
the production of more wealth. " Except a corn of luheat 
fall into the ground and die, it ahidetli alone, ltd if it die, 
it briiigeth forth much fruit." So, the great teacher, 
Jesus, stated a fundamental principle of Political Economy, 
Labor applied to capital destroys value of one kind, m 



80 PEODUCTIOIS". 

order to bring forth a superior value of another kini. In 
the process of production, this change passes upou capital 
in each of its forms. The materials are immediately con- 
Bumed. The seed-corn dies and the cotton is destroyed aa 
cotton-wool, when it enters into the fabric of cloth. By 
use, the instruments slowly but surely wear away and go 
to decay. Food is rapidly coi:sumed, clothing more gradu- 
ady, and more slowly still, the house which gives shelter ; 
but on all, the changes are in one direction, toward destruc- 
tion. The finished product too, is disposed of to otliera 
and so is lost to the producer, to appear again in new ma- 
terials, new implements, new means of subsistence and 
new products. 

Thus, under the application of labor, capital is under- 
going perpetual changes which involve the destruction 
of value. But these changes are guided by the purpose, 
through that destruction, to bring forth products of greater 
ralue. If the labor be skillfully directed, the product will 
.lave a value sufficient to replace the capital, that is, all 
ihe materials destroyed, the implements worn out and the 
means of sustenance consumed, with a surplus, which is 
profit. This profit is measured always by the diSerence 
between the value consumed and the value produced. It 
is obvious, that it matters not in what form capital re-ap- 
pears, if it only re-appear in a form bearing a greater 
value. The smith exchanges gold or silver for coal ; ha 
burns up his coal, and nothing is left but ashes. But i 
has produced an invisible substance, called caloric, by 
means of which he has been able to give such an increased 
value to iron, as will not only replace his gold and silver 
but also the iron itself, and will also pay him for his labor. 
The farmer exchanges his gold or silver for manure, but 
this manure will so increase his harvest, that he will -be 
able to replace his gold and silver, and also be abundantly 
repaid for his labor. The principle is the same in all casei 



PBODUCnVB AND UNPRODUCTIYE CAPITAL. 81 

of change of capital. It matters not into wliat we change 
our capital, nor how valuable the substance may be that ia 
exchanged, if we only receive in return a greater amount 
of value, or that which will procure for us a greater amouni 
of objects of desire. 

We see hence in what manner nations and Individ uaJS 
grow rich. It is by uniting the industry of this year to the 
capital of last year, and by this process creating an augmen- 
tation of capital. This augmentation will be either greater 
or less, in proportion as our industry has been successful 
in giving additional value to that value which previously 
existed. If we destroy a value and produce another only 
equal to it, we lose our labor. If we destroy a value and 
reproduce nothing, we lose both labor and capital. It ia 
only as the value created is superior to the value of labor 
and capital consumed, that we are enriched. Hence we 
see that the rule of economy in the use of capital is to con- 
sume as little as possible for a given result, and out of a 
given consumption to bring the largest possible product. 
The ever recurring problem is liow to consume less and to 
produce more. 

Productive and Unproductive Capital. — Care- 
ful adherence to our definition, in great measure does 
away with this distinction which many writers make promi- 
nent. By our definition, capital is meant to be always 
productive, and vfealth unproductive is not caintal. Buk 
occasionally, through mistaken application, capital is iu- 
Tolvrd in unprofitable investment, as in experimental 
Qiachinery found unsuitable for its purpose, or in the 
grading of a line of railway, afterward abandoned. A 
financial revulsion may compel the suspension of business 
so that great factories must stand idle, or it may produce 
a stagnation of trade, such that large stocks of goods must 
be held for many months unsalable. A great railway, af tta 
4* 



82 PEODUCTIOK. 

large outlays for its construction, may liave business enough 
barely to meet its running expenses and repairs, yielding 
1 3 returns for the capital. In these cases, it may be said 
tiat for the time cajntal is unproductive. But as soon aa 
it appears clearly that the investment is unprolitable, so 
much of tlie capital as can be saved, will be withdrawn ani 
applied to some other mode of production. The rest mast 
he set down as lost and is no longer capital. 

Many persons who have been induced to furnish means 
for constructing a railway to run near their property, thus 
becoming stockholders in the company, have lost the capi- 
tal thus invested, so far as dividends are concerned ; per- 
haps the entire railway property has passed into the hands 
of bondholders, beyond recall. Yet they may have beer 
fully compensated by the increased facilities for business. 
and the enhanced value of their property which the roac 
nas secured. In this case, their stock-iuA'Cstment is un- 
productive, utterly lost perhaps, yet the capital put in ia 
still there, productive, as it favors every branch of industry 
in the community, their own with the rest. The greater 
hardship falls on those who have put their means into 
the stock without a chance to share in the benefit of the 
improvement. To them their capital is simply lost, 
though it is still aiding the general production of the 
country. 

While capital is unproductive, it may be considered aa 
losing annually its ordinary rate of interest. Hence every 
wise economist desires to have the whole of his capital pro 
d actively invested. Thus the thrifty farmer will spread 
his manure on his fields, instead of leaving it to waste in 
his farm-yard. The efficient merchant will keep his ships 
moving and push his goods off his hands as fast as possible. 
And the enterprising manufacturer will be careful not to 
axtend his machinery beyond his ability to keep it run- 
ning. Sound economy prompts every one to unite every- 



FIXED A:^D ClECULATI^^a CAPITAL. 83 

thing which he can turn into capital, with labor, ar i to 
keep it so united continually. 

Fixed and Circulating Capital. — Our statement 
of the forms of capital simplifies this distinction. Mr. Mill 
presents this distinction substantially thus. CircuIaiiTig 
capital fulfills its office in production, by a single use, and 
brings its returns at once. Fixed cajjital takes a jMrma- 
nent form, and fulfills its function in production by mani^ 
rejMitions of its use, and gathers its returns in quotas 
spread over a lyeriod of time. Under this view, it is evi- 
dent that our second form of capital, viz., implements and 
machinery, embraces almost everything which is properly 
called fixed capital. We need to add only so much of the 
third form as is put into permanent dwellings. All the 
other forms are circulating capital. Thus, materials aro 
consumed at once, and cannot again render the same ser- 
vice, as, when leather is transformed into shoes, it is de- 
stroyed as leather, though its value in the shoe is much 
enhanced. So, too, the portion of capital devoted to the 
subsistence of laborers, represented generally by wages ia 
consumed when paid over to the laborers. Its service can- 
not be repeated. The wages paid weekly to the hands in 
a cotton-mill no longer exists as the capital of the company, 
though its value reappears in the health and vigor of the 
workmen, and with some, in that which they may save aa 
capital to be used for other purposes. In like manner, 
capital in the form of goods or finished products, fulfills ita 
lunetion for the manufacturer as soon as they find a pur- 
cnaser, though the avails may be applied to replace mate- 
rials, wages or the wear of machinery in the same estab 
lishment. All this therefore is called circulating capital^ 
though the name is not altogether appropriate. On ths 
other hand, the buildings, the machinery, the tools, the 
land and whatever is put into its permanent improvement, 



84 PEODUCTIOiT. 

ships And railways are fixed and durable and over and oyei 
again for years, it may be for a lifetime, repeat their ser- 
"vice, subject only to gradual decay or occasional breakage. 

Economical production requires that the single use of 
circulating capital shall rejoroduce a value equal to that of 
the original expenditure, with something added for profit. 
Fixed capital answers its purpose, if during the whole pe- 
riod of its repeated use, it brings in enough to pay for itself 
and needed repairs and a profit equal to ordinary interest 
on its entire value. 

The lirie of distinction between circulating and fixed 
capital cannot te drawn absolutclif hy naming commodities 
oil either side. A plough regarded as a finished product 
held by the manufacturer, or as a part of the stock of a 
dealer in agricultural implements, belongs to circulating 
capital. But as soon as it is taken home for the farmer's 
use, it becomes a part of his fixed capital. Just so it is> 
with a turbine wheel or a steam-engine. We class either 
with circulating capital while in the hands of the machin- 
ist, finished, but not sold ; with fixed capital, as soon a5 
ti'ansf erred to the place of service for which it was intended 
in the mill. 

As production increases wealth, the tendency is always 
io put more and more of the accumulating ivealth into forms 
of fixed capital. Men wish to use the surplus of value 
gained this year in some way to bring them a larger sur- 
plus next year. Thus a profitable establishment naturally 
expands itself. If ten thousand dollars, invested in build- 
ing and machinery has yielded a profit of two thousand— 
the introduction of additional machinery, costing it may 
be, jnly two thousand five hundred dollars, may double 
llie product and the profit. So it is in the unfolding in- 
dustry of a new country or a young community. At first 
the amount of capital is necessarily small. But as every 
yearns production gives a surplus, moie or less of that sur- 



FIXED AN^D CIRCULAIEJ^TG CAPITAL. 85 

plus will be put into machinery for increased production 
Thus in its steady increase, capital naturally seeks out ne^ 
methods of employment in divers manufactures, and the 
manufacturing interest grows as a tree grows. The sur 
plus of wealth produced, spontaneously seeks investment 
tts fixed capital. In their proper and natural time, there- 
fore, manufactures must he established, and as tliat time 
arrives, they luill he established without the aid of legisla- 
tive enactment, and according to the very laws by which 
accumulation is governed. 

This tendency to the increase of fixed capital, works, 
for the most part, healthily and advantageously for both a 
particular industry, and for the general industry of the 
whole public. But there are two dangers attending it. 

1. There is danger of over-production of certain com 
modi ties. If a paper-mill has produced fifty thousand dol 
lars- worth of paper, and earned a handsome profit, it is 
very natural to suppose that doubling the product will 
double the profit, especially if it is found that a compara- 
tively small addition to the machinery will so increase the 
production. But the market may not demand this en- 
larged supply, or it may be that a dozen paper-manufac- 
tui'ers will be thinking and doing the same thing at once, 
and what would have been advantageous to one, proves 
disastrous to all. 

2. There is danger also, of a too suddeii and rapid 
ahsorj^tion of availahle means in fixed capital. A due pro- 
Doition^ not exactly definable, must always be maintained 
lefcween fixed and circulating capital. If a manufacturing 
company adds largely to its fixtures, there must be a cor- 
responding increase of its working capital, or embarrass 
riient and perhaps failure will follow. The same thing I'g 
true of the general operations of a community. It hap- 
pens not infrequently, that a period of prosperous industry 
Kinduly stimulates the manufacturing interest, or the ship* 



86 PRODUCTioiq'. 

ping iuterest or the railway interesl^ so tliat before men 
are aware, a large portion of the capital of a conntry ia 
locked up in instruments for increased production, leaving 
quite iosufficient means for carrying on the enlarged opera- 
tions. Thus, a few years ago, all England was convulsed 
by a financial crisis, caused in a great degree by a sudden 
SLd yery rapid absorption of capital in railways, which 
while they might ultimately favor the productiveness of al! 
industry, could bring in their returns only after a lapse of 
time. This mischief is always aggravated by any inflation 
of the currency, or increase of that which passes for money 
In this connection, therefore, it is to be observed that 

Money, though circulating more freely than any thing 
else, must really le classed as fixed capital. In the busi' 
ness operations of an individual or an incorporated com 
pany, some money is essential. There, it ordinarily repre- 
sents circulating capital in transition, as when the manu 
facturer has sold his products and liolds the money received, 
waiting for his next purchases of materials or his next pay 
ment of wages. But, viewed in its true nature, with 
respect to its broad, general function, money is but an in- 
strument of exchange — an instrument, when genuine, 
made of gold or silver, to serve a certain end in tJie opera- 
tions of industry, just as an anvil is made of iron for its 
specific purpose. The gold might have been transformed 
into a watch-case or a finger-ring, for the gratification 
of desire. Instead of that, it is turned into coin and so 
get apart to serve the production of wealth by a thousand 
repetitions of its function as an instrument of trade. TLa 
same coin, say an eagle, may go out of the bank in the 
morning, run around a busy circuit and get back in the 
afternoon. The manufacturer, for example, draws it from 
the bank and pays his laborer ten dollars of wages — he 
transfers the same money to the farmer for a load of pota- 
toes — the farmer passes it to the plough-maker for a 



MONET-CAPITAL. 8? 

plough — he in turn pays it to the hardware merchant for 
iron, and the niercliant deposits it again in the bank. Tur 
ing the day, it has represented four kinds of circulating 
^apital, carrying each to its appropriate place, but it comes 
uack to the bank, just what it went out, money, the same 
thing unchanged. It has rendered important service in 
production, but its service is like that of a wheel-barrow, 
which has transferred to different parties four diUeront 
loads. The money could not do the work of the laborer, 
the laborer could not eat it, the farmer could not plough 
with it, the plough-maker could not work it into a plough, 
and the merchant could not store it with his goods. But 
it has brought to each just what he needed, and there it 
still is, in its proper depository, ready to repeat like servi- 
ces to-morrow. We see then that real money is a part of 
the products of former labor, saved and set apart for this 
service. It is capital m the form of a permanent instru- 
ment to aid production, hence fixed capital. It is subject 
to slow wear which must be replaced by gold or silver from 
the mines, a part of the circulating capital of the country. 
Hence, as any country may have a greater amount of 
fixed capital than it needs, for instance, of some particular 
kind of machinery ; and as, when this is the case, it sends 
it abroad, or in other words, makes it an article of export, 
or changes it into circulating capital, so is it with money. 
If a country has more money than is sufficient to accom- 
plish its exchanges, it sends it abroad, and receives back 
iomething that it needs more. Such is, permanently, the 
oase in mining countries ; and such is at times, the condi- 
tion of almost every commercial nation. 



CHAPTER iX. 

C0 0PERATI0:N' of LABOK and OAPITAIa 

The true relation of Labor and Capital is that 
of Partners, Co-adjutors for a common end^ — Sharers 
in a joint result. This is evident from what has been said 
of the nature and function of each, considered separately. 
In the production of wealth, each is necessary to the other 
each is helpless without the other. Antagonism between 
the representatives of these two essentials to the increase 
of wealth is unnatural and ruinous to the interests of both. 
The most stalwart and vigorous man can effect nothing 
without the fruit of previous labor, that is capital, in the 
form of food and clothing, materials and tools. With 
nothing to live on and nothing to work with, he can but 
pine away and die. On the other hand, warehouses full 
of cotton, factories filled with ingenious machinery, stores 
stocked with goods, — capital in whatever form, accumulated 
to whatever extent, can do nothing to increase itself. Let 
alone, it can only rot or rust and go to decay. Productive 
industry begins with the hands of labor laying hold of the 
materials, guiding the machinery, transporting the goods, 
and so working changes which impart new utilities, or in- 
crease existing value. 

This general fact is recognized in many common 
forms of speech. Thus when industry is directed to a 
particular employment, the act is spoken of as applying 
capital to the employment. When land is improved, capi. 
tal ifi applied to farming. When a factory is set up, capi' 



00-OPEEATION OP LABOE AT^B CAPITAL. 89 

ta! is invested in manufactures. In all such cases, lalor ia 
the thing really applied, but the phrase is very naturally 
used, because it is understood that capital is an indispene* 
atle condition of the proposed industry. So we often meet 
with the expression '^ the productive powers of capitaV" 
This is not strictly correct, for capital has in itself no 
power at all. Really the only productive powers are labor 
and the natural agents which labor directs. Yet the ex 
pression does not mislead men, because the very term capital 
carries with it the idea of its correlative and supposes labor 
joined with it to make it productive. The common sense 
of men, indicated by their current forms of language, ia 
altogether sound on this matter. It most fully recognizes 
»abor and capital as the two necessary and inseparable 
factors in the production of wealth. It is pitiable to see 
now often minds are sophisticated by some sort of false 
philosophy so as to lose their commoji sense with respect 
to these things. Here, as elsewhere generally, plain com- 
mon sense is but another name for the universal, intuitive 
perception and acceptance of the first principles of sound 
philosophy. Such a truth is this of the essential equality 
and 7iecessary ha7ino7iious union of labor and capital in 
all productive industry. 

Abstractly considered, labor and capital stand tow«.rd 
each other on an Equality. If there is any differen'^.e, 
capital is the more helpless of the two. For it is nothing 
but dead matter, whereas labor is a vital force which c^n 
move itself and pick berries and possibly run down a rat- 
bit or catch a bird by bare human hands and feet. D'\» 
regarding this diHerence, we m.ay say that as factors o* 
prwluction, they are equal. 

For their Co-operation, these elements meet most 
fiarmo?iiously in the same persoUy — that is, when the laborer 
mens capital enough to employ his own labor. This brings 



90 PEODUCTIOIT. 

both elements under the oontrol of one and the same wiH 
to be governed by one self-interest. All rivalry and antag- 
onism are excluded, and according to the measure of hig 
capital and his physical and mental capacity, the man will 
multiply products. 

But for several reasons, this adjustment cannot be made 
universal. 

1. Such is the tendency of capital to iJicrease under the 
steady application of labor, that the man will soon find in 
Jiis hands a, surplus, to employ which, he must either bring 
in another who has only labor, to work under him, or lend 
it, as capital to another independent worker. Thus a dis- 
tinction between laborer and capitalist is sure to arise. 
The only alternatives are either to store away the surplus 
as hoarded wealth, — not capital, — or to consume it in a 
more hcxurious style of living, or to diminish the amount of 
labor, so as to avoid tlie increase of capital, all of which 
are against the dictates of sound economy. 

2. A greater difficulty comes from the great diversity 
df capacities and tastes among men. Some who are strong 
for physical labor, lack managing skill and tact in saving, 
and so are unable to accumulate and employ capital, actmg 
independently. Others, peculiarly endowed in these re- 
spects, are feeble in body and unfit for manual toil. To 
many, labor is peculiarly irksome and they will seek exemp- 
tion from it, as soon as their increased capital enables them 
to do so. To others the care of managing business is no 
less distasteful, and they choose to labor on, passing their 
accumulating capital into other hands. . 

3. Many forms of production of highest consequence in 
-^i^ilized society, must he carried on in large establishments, 
where are combined a great amount of capital and great 
numbers and divers grades of laborers. In no other way 
can the full advantage from the use of natural agents and 
the application of the principle of division of labor be 



CO-OPERATIOIf OF LABOE AKD CAPITAL. 91 

realized. As active invention multiplies labor-saving ma- 
chinery, many of the common articles formerly made by 
hand, by members of the household, have now to be pio- 
duccd on a large scale, involving a company of capitalists 
who employ a company of laborers. 

These causes tend to separate the two elements, so that 
oapital falls to some and labor to others. The abstract 
equality and mutual dependence just spoken of is thus dis- 
turbed. As the parties meet to enter into contract with 
each other, the capitalist has the advantage, because he can 
live on his capital without labor, but the laborer must earn 
the necessities of life by working with somebody's capital. 
Under the sway of short-sighted self-interest, capitalists 
are tempted to use this advantage to dictate terms and 
oppress laborers. We say sUort-siglited self-interest, for in 
the long run, and in the broad view, such oppression must 
react against the oppressors. When laborers are held down 
to starvation wages, capital must be heavily taxed for the 
support of paupers, and in time, there will surely come an 
insurrection to make capital insecure. The consciousness 
of dependence tends to make laborers sensitive to the 
least real wrong and suspicious of wrong where none exists. 
On the other hand, wliere laborers rally to maintain their 
^ights, capitalists grow distrustful and either withdraw 
their wealth from production, or burden its use with em- 
barrassing conditions. Against their own true interests on 
both sides, the parties are thus led to array themselves 
against each otlier. The strength of this tendency, and 
the mischiefs flowing from it, as revealed in England and 
recently in our country, demand thoughtful consideration. 
How to guard the rights of both parties so that they shall 
be bound by their natural common interest, in harmonioua 
union with each other, is an important and difficult prob- 
lem of political economy. Without attempting here, f 
full discussion of that problem, we may state certain 



92 PRODUCTION". 

Conditions and Circumstances which fa'vof 
the harmonious Union and effective Co-opera- 
tion of Labor and Capital. 

1. A general Distribution of Capital is a mattoT 
of prime importance. By this is meant such a condition 
of things that the capital of a country shall be in many 
hands rather than few, — that laborers themselves shall hare, 
or be encouraged to secure some capital. So distributed, 
capital is most closely joined with labor, and is used most 
economically. At the same time, labor is stimulated to 
its highest effectiveness. Very many persons are both 
capitalists and laborers, in a position to see most clearly the 
common mterests, as requiring mutual good-will and 
hearty union. They will therefore, be inclmed to oppose 
the drawing of lines to separate these classes, and all infiu 
ences which tend to produce antagonism between them. 
Some concentration of capital is, as we have already seen, 
essential to the most effective division of labor. But 
beyond this necessity, the great aggregation of capital in 
the possession of individuals, is disadvantageous because it 
leads inevitably to despotic assumption on the one hand, 
and to envyings and jealousies on the other. 

Such a general distribution of capital is opposed hy 
anything in the social organization wJiich creates or sustains 
privileged classes. 'No aristocracy can long be maintained 
without some provision securing to a class special advan- 
tages for the possession and transmission of property. In 
Lie history cf nations, we find the most common form of 
such provision to be by restrictions on the division or dis- 
posal of lands. Whatever also, in legislation or usage by 
the easy allowance of public opinion tends to create or 
maintain monopolies, opposes the general distribution of 
capital. If no hindrances are in the way and no special 
protection is accorded, the natural working of things oa 



CO-OPERATIOIf OF LABOR AND CAPITAL. 93 

principles of self-interest will promote a general distribu 
tion of capital. 

This end may be promoted by all measures wliish ery- 
murage saving, especially on the part of laborers. Savings^ 
bankSf established on a sound basis and honestly managed; 
eiich as New England has had and has profited by for 
more than a century, or perhaps better still, a government 
savings-bank, through a modification of the postal order 
system, on the plan now in successful operation in England, 
render valuable service in this matter. ]\Ioreover, the 
stock of large manufacturing compa7iies may be divided 
into small shares and brought within the reach of the oper- 
atives, so as to induce them by their savings to become 
owners in part of the capital, and so to be entitled to divi- 
dends in addition to their wages. Such measures elevato 
labor and give it independence, and also increase capital 
by devoting much wealth, that would be otherwise wasted, 
to production. Capital thus distributed stimulates energy, 
develops talent, comes closer to labor, bettor defends 
tself and superintends operations by having in each work- 
man an interested observer of both his own and others' 
work. 

2. The Ratio of the amount of Capital to the 
number of Laborers and the ratio of the Increase 
of Capital to the Increase of Laborers must have 
an important bearing on the co-operation of these two 
forces. We cannot too often reiterate, nor too strongly 
emphasize the fundamental principle that Industry is Urn- 
ited ly Capital, and that every increase of capital demand 
incrsase of labor. When the number of laborers is great 
and the amount of capital small, there will be a competi- 
tion of laborers for work. This tends at once to reduce 
the rate of wages and some will fail to obtain employment 
and others will receive barely enough to avoid starvation. 



94 PKODUCTlOJf. 

There is consequently great distress, general discontent, 
and often violent insurrecdon which aggravates the whol€ 
difiQculty. 

On the contrary, when the number of laborers is small 
md the amount of capital great, there will be competition 
among capitalists for labor, and the wages or price of labor 
will rise. This may so enhance the cost of products, as to 
make industry in certain lines of production unprofitable. 
Hence capital must wait, unemployed, for an inflow of 
laborers. This difficulty is more easily relieved than the 
other, because capital invites labor to itself, and a brief time 
will ordinarily adjust the proportions, so that the two ele- 
ments will work harmoniously together for their common 
advantage. 

'No universal rule can be given for this proportion. It 
will vary somewhat according to the circumstances of each 
country and the spirit of its people. The age of a coun- 
try, its natural advantages and the general occupations ol 
its people must be taken into account. In a newly settled 
country of great fertility, avast amount of land is open fo^* 
cultivation which will yield rich returns for labor expended 
on it. This of itself may serve as a peculiar stimulus to 
labor. But this advantage may be balanced by distance 
from the world's market, and consequent cost of transpor- 
tation and difficulty of obtaining other objects of desire 
than the fruits of husbandry. Generally, however, in a 
new country, occupied by a thrifty people, capital increases 
faster than labor, and there we see always the highest stim 
ulus to production and the most effective cooperation oi 
labor and capital. 

For all countries and for all people, the thing to bo 
desired and aimed at is that there shall be labor enough to 
use the capital and capital enough to employ the labor, giv' 
ing it due reward. A perfect balance is perhaps nowhere 
realized, and if once attained it is liable to be disturbed, 



OCM)PERATION OF LABOK A^D CAPITAL. 99 

Yet, if labor and capital are free, the flow of each, undei 
the law of competition, toward an equilibrium, is as natu- 
ral as that of the waters of the ocean under the action ol 
gravitation. In the order of nature, undisturbed, there is 
provision for the steady increase of bot'i capital and labor, 
in something like a definite proportion. There is no danger 
of a surplus of either for the whole world, nor for anj one 
country, if only the passage is open and free for the out- 
flow and inflow of both and of their joint products. 

In this view, it is evident that the accumulatiou of 
capital is more for the advantage of laborers than ot 
capitalists. The greater the ratio of capital to labor, the 
greater will be the share of tlie product that falls to the 
laborer. The greater the ratio of labor to capital, the 
greater will be the share of the product that falls to the 
capitalist. Hence, the laboring classes are really more 
interested in tlie increase of the capital of a country, than 
the wealthy classes. When one class of the community 
repine at the prosperity of another class, they repine at 
their own mercies, and the means of increasing their own 
rate of compensation. 

It is however evident, that the accumulation of capital 
in any nation does not depend simply upon its annual 
production, but upon the proporfmi that its afinual pro- 
duction bears to its annual eocpenditure. A country that 
annually expends all its production, let it produce e\er so 
much, will never increase its capital. A country that pro- 
duces ever so little, if it annually expend somewhat less 
than its revenue will be accumulating something ; and 
must in progress of time become richer than its more 
highly favored neighbor. This ex])lains the fact that the 
countries blessed with the richest soils and the greatest 
natural advantages, have not generally become the richest. 
The result has within moderate limits been almost tha 
reverse. 



PKODUCTIOK. 

Hence we see that every mode of unnecessary expendi* 
fure, whether individual or national, by diminishing tha 
unnual accumulation of capital, tends directly to lower the 
rate of wages, and thus injure the condition of the labor- 
ing classes. The millions which are wasted and destroyed 
by intemperance, if saved, would add to the capital of a 
country, and thus increase the demand for labor. All 
unnecessary expenditure for the maintenance of civil gov- 
ernment, has of course, the same tendency. Hence arises 
also, one of the most afflicting consequences of war. Had 
the almost incalculable sums which Great Britain has ex- 
pended in wars for the last hundred years, been added to 
her operative capital, and but for these wars, it would 
have been so added, all her inhabitants would have found 
dt all times abundant employment, and at a rate of wages 
which would by this time, have banished almost the recol- 
lection of poverty from her shores. 

3. The happy co-operation of labor and capi- 
tal depends on the certainty that each shall 
nave its just reward. — Nobody questions the right of 
the laborer to the fruit of his toil. The expectation of 
enjoying some advantage thereby prompts the exertion of 
Kis powers, and the common sense of men affirms that he 
ought not to be deprived of that advantage. The right of 
capital to its reward, though questioned by not a few, 
stands on the same basis of intrinsic justice. Capital ia 
but the fruit of previous labor saved. The labor that pro- 
duced it was like present labor, a cross, endured in expec- 
tation of its acquisition as a reward. To that was added 
the cross of self-denial, by which it was saved mstead of 
being expended on some immediate gratification. On both 
grounds its owner justly asks that he shall receive somo 
compensation for its use. Since labor can earn nothing 
inthout capital to work with and capital can yield no 



DIVISIOif OF PEOPEETY. 97 

revenue unless labor be applied to it in actual use, each is 
entitled to its share of the product of their union. Noth' 
ing else so disables industry and hinders the growth oi 
wealth as the selfish gi-eed which would rob either partner 
Oi his reward or make it insecure. To ensure to each thii 
certainty of reward, several things are essential. 

a. There must be Division of Property — personal own- 
ership in everything that can by labor be made an object 
of value, and appropriated. Without this, capital cannot 
be. On common property, men will not labor except on 
the compulsion of force or stern necessity. When prop- 
erty is held in common, every individual of the society to 
which it belongs, has an equal, but an undivided and inde- 
termined right to his portion of the revenue. Hence 
every one is at liberty to take what he will and as muct 
as he will, and to labor as much or as little as he pleases. 
There is therefore, under such an arrangement, no C07i- 
nectio7i between labor and the reiuards of labor. There ia 
rather a premium for indolence than for industry. In 
such a case there will be no regular labor, if indeed there 
be any labor at all ; and what is still worse, even the scanty 
and spontaneous productions of the earth will frequently 
be gathered before they are ripe, since every one fears 
that, if he do not seize them now, he will never enjoy them 
at all. The forest of an Indian tribe is held in common 
and a few hundred families barely subsist upon a territory 
which, were it divided and tilled, would support a million 
of civilized men. The little that it produces to him is the 
result of division of property. His bow and arrows, hia 
wigwam, and his clothing are acknowledged to be, in the 
fullest sense, his oiun. Were these to be held, like hia 
land in common, the whole race would very soon perish 
from want of the necessaries of life. 

On the contrary, as soon as land with all other prop- 
erty is divided, a motive exists for regula.- and voluntary 
5 



98 PHODUcnoif. 

labor, iiiasmnch as the individnal knows that be, and not 
bis indolent neighbor, will reap the fruit of his toil. 
Uencefortb he begins to create a regular supply of annna. 
product. With increased skill, this annual product in- 
creases, and he begins to convert it into fixed capital. 
Every accession to his fixed capital renders his labor more 
productive, and hence it creates a stronger stimuius to 
increased exertion. With increased exertion, his annual 
capital is increased, and a greater surplus remains to be 
changed into fixed capital. Increased production stimu- 
lates mdustry, and increased industry results in more 
abundant production. Thus division of property, or the 
appropriation to each of his particular portion of that which 
God has given to us all, lies at the foundation of all accumu- 
lation of wealth, and of all progress in civilization. 

It is for this reason that property held in common is so 
generally prejudicial to the best interests of a society. A 
common, where every one at will may pasture his cattle, 
and a forest, from which every inhabitant may procure hia 
fuel, are encouragements to indolence, and serve to keep a 
community poor. Thus, also, funds left at large for the 
support of the poor, on which every one is supposed to 
have an equal nght to draw, have generally been found to 
foster indolence. Poor-laws, in so far as they are to be 
considered a fund for this purpose, have the same sort of 
mjurious tendency. Societies like those of the Shakers or 
the German Am-a-na, organized for a sort of common fam- 
ily life with common property, seem to prosper. In reality, 
however, these are only joint-stock companies, holding 
and managing property in a peculiar way. Tlieir sue* 
cess, like that of any other corj:ioration, depends on tlie 
fact that the principle of division of property ])revails all 
around them and that they are subject to its law. Each 
member simply merges his individual interest in that of 
the community and is represented in the corporation, 



SECURITY TO PROPERTY. 99 

which, in the eye of the law, is a personality with distinct 

property- rights. 

b. There must he also Security to all Property-rights ^ 
both prevalent moral se^itiment and just laios equitably 
applied and faithfully executed. As no one will labor, 
unless he knows that he shall reap the fruit of his toil, sc 
no one will take the pains to reap the fruit of his toil, 
unless he also know that he will be able to hold it, and 
appropriate it to the purposes of his own gratification. 
And hence, we see that human labor is exerted in different 
coun tries, very much in proportion as the right of prop- 
erty is both understood and enforced. 

The right of property may be violated by the Indi- 
vidual or by Society. It is yiolated by the individual by 
cheating, stealing, robbery, and violation of contracts. 
And, universally, just as these crimes prevail, production 
languishes, industry diminishes, and the richest soil fails 
to support its few and impoverished inhabitants. Sucli 
was the case in Europe, during the era of feudal oppres- 
sion. There was then no encouragement to labor, because 
no one knew whether he, or a baronial tyrant, would reap 
the fruit of his industry. 

Hence, we see the economical importance of means 
which shall prevent the individual violation of the right 
of property. These means are two. 

The first is, the inculcation of those moral and reli- 
gious principles, which teach men to respect the rights of 
others as their own, that is, to obey the law of reciprocity 
and which present the strongest conceivable reasons for so 
loing. This is the most certain method of preventing the 
riolation of the right of property, inasmuch as it aims to 
eradicate those dispositions of mind from which all viola- 
tion proceeds. It is also the cheapest, as it aims at preven- 
tion, which is always more economical than cure. It ia 
also necessary, inasmuch as good laws will never be enactedj 



100 PEODUCTION. 

or if enacted will never be obeyed, only in bo far as there 
exists a moral character in the community sufficiently pure 
to sustain them. In proportion as these are efficacious, all 
other means are needless. Hence, we see the reason why 
snDral slvxI religious nations grow wealthy so much more 
'apidly than vicious and irreligious nations. The feeling 
of perfect tranquillity and security, which a high social 
morality diffuses over a whole community, is one of the 
most beneficial, as well as one of the strongest stimulants 
to universal industry. This is one of the temporal rewards 
which God bestows upon social virtue. And, inasmuch as 
no one can enjoy this reward, simply by being virtuous 
himself, but only as his fellow-citizens also are virtuous, we 
see the indication in our constitution, that it is the duty, 
as well as the interest, of every man, to labor to render 
other men more virtuous. 

But second, inasmuch as all men are not influenced in 
their conduct by moral and religious principles, it is neces- 
sary that aggression be somehow prevented, and violations 
of property, in so far as possible, redressed. Hence the 
importance of wJiolesome and equitable laivs, of an inde- 
pendent and firm judiciary, and an executive, which shall 
carry the decisions of law faithfully into effect. The ex- 
pense necessary for the most perfect administration of jus- 
tice, -is among the most productive of all the expenditures 
of society. Good law, and the faithful administration of 
it, is always the cheapest law, and the cheapest adminis- 
tration of it. The interests of man require that law 
?jhould be invariably executed, and that its sovereignty 
ihould, under all circumstances, be inviolably maintained. 

But the right of property may be violated by Society-. 
It sometimes happens, that society, or government, which 
is its agent, though it may prevent the infliction of wrong 
by individuals upon each other, is by no means averse to 
inflicting wrong or violating the right of individuals itself. 



SECURITY TO PROPERTY. 101 

This is done where governments seize upon the property 
of individuals by mere arbitrary act, a form of tyranny 
with which all the nations of Europe were, of old, too weli 
acquainted, It is also done by unjust legislation ; that is, 
when legislators, how well soever chosen, enact unjust 
aws, by which the property of a part or of the whole ia 
unjustly taken away, or what is the same thing, subjected 
to oppressive taxation. 

Of all the destructive agencies which can be brought 
to bear upon production, by far the most fatal is public 
oppressio7i. It drinks up the spirit of a people, by inflict- 
ing wrong through means of an agency which was created 
for the sole purpose of preventing wrong ; and which was 
intended to be the ultimate and faithful refuge of the 
friendless. When the antidote to evil becomes the source 
of evil, what hope for man is left ? When society itself 
sets the example of peculation, what shall prevent the in- 
dividuals of the society from imitating that example ? 
Hence, public injustice is always the prolific parent of 
private violence. The result is that capital emigrates, 
production ceases, and a nation either sinks down in hope- 
less despondence ; or else the people, harassed beyond en- 
durance and believing that their condition cannot be made 
worse by any change, rush into all the horrors of civil 
war ; the social elements are dissolved ; the sword enters 
every house ; the holiest ties which bind men together are 
severed ; and no prophet can predict, at the beginning, 
what will be the end. 

Hence we see the importance to the industry of a conn- 
ry of a constitution which guarantees to the individual 
immunity not only from private, but also from public o}>- 
pression. Wherever this immunity is wanting, the pro- 
gress of a nation in wealth will be slow. It is owing rathei 
to the freedom of her institutions and the equity of hei 
laws, than to her physical advantages, that Great Britain 



102 PRODUCTION 

has so far outstripped all other European nations in the ao- 
cumulation of wealth, and in everything that confers socia. 
{)ower. It is almost superfluous, however, to add, that a 
free constitution is of no value unless the moral and Intel 
(ectual character of a people he sufficiently elevated t^ 
avail itself of the advantages which it offers. It is merelj? 
kn iyistrument of good, which will accomplish nothing un- 
less there exist the moral disposition to use it aright. 

c. There must be for both capital and labor, perfect 
Freedom unrestricted hy monopolies or special legislation, 
A special favor in these relations of labor and capital in- 
volves an infringement of freedom on one side or the other 
and that is an interference with natural law, — a hinder 
ance to the best results. A man's possessions are his tal- 
ents, faculties, skill, and the wealth and reputation which 
these have enabled him to acquire ; in other words, his in- 
dustry and his capital. In order that industry be applied 
to capital with the greatest energy, it is necessary tha 
every man be at liberty to use his own as he will ; that is 
that both of them be free. 

And first, of industry. The aptitudes of men for 
iifferent employments are very dissimilar. The choice of 
every man naturally leads him to that employment for 
which he is best adapted. By allowing every man, there* 
fore, to employ his labor as he chooses, every man will be 
employed about that for which he is best adapted ; and 
hence, the production of all will be greatly increased, be- 
cause we thus avail ourselves of the peculiar productive- 
ness of every individual. Xor is this all. By allowing 
every man to labor as he chooses, we very greatly increase 
the happiness of every individual. And every one knows 
that a man will labor with better success when his labor is 
pleasant, than when it is irksome. 

The case is the same with respect to capital. Every 
man is more interested in his own success, than any othei 



FREEDOM TO LABOR AND CAPITAL. 103 

man can be interested in it. Hence, every man is likely 
io ascertain more accurately in what maoner he can best 
employ his capital, than any other man can ascertain it 
for him. If every man, therefore, be allowed to invest his 
capital as he will, the whole capital of a country will be 
more profitably invested, than under any other circum 
stances whatever. And since, when he is left thus a4 
liberty, there will be the greatest gain to the capitalist, 
there will also be the greatest stimulus to his industry ; for 
the stimulus to labor is always in proportion to the rewards 
of labor. And, on the contrary, in just so far as, by any 
means, this productiveness is diminished, the stimulus to 
labor is also diminished with it. 

It may be said that men, if left to themselves, will be 
liable to invest their capital unwisely. This may be 
granted. Man is not omniscient and therefore this liabil- 
ity cannot be avoided. The question is how shall it be 
rendered as small as possible. Will a man who reaps the 
benefit of success and suffers the evils of failure, be less 
Jikely to judge correctly, than he whose faculties are 
^^uickened by no such responsibility ? Nor is this all. 
Not only are legislators who generally assume the labor of 
directing the manner in which labor or capital shall be 
employed, in no manner peculiarly qualified for this task, 
they are in many respects, peculiarly disqualified for it. 
The individual is liable to no pemiliar biases in making 
up his mind in respect to the profitableness of an invest- 
ment. If he err, it is because the indications deceive him. 
The legislator, besides being liable to err by mistaking 
the indications, is liable to be misled by party zeal, by 
political intrigue and by sectional prejudice. What indi« 
yidual would succeed in his business if he allowed himseU 
to be influenced in the manner of conducting it by such 
considerations ? And must not like causes always produc€ 
like results ? 



104 PEODUCTIOir. 

Besides, every man feels instinctively that lie das a 
right to use his capital and his industry as he pleases, pro- 
Tided he interfere not with the rights of another, and 
Wiat to restrict him in this use is injustice. We have before 
griid, that nothing paralyzes industry like oppression, and 
it is as true in this case, as in any other. If this sort of 
inierference be violent or frequently repeated, capital and 
labor, whose motto, like that of Dr. Franklin is, " "Where 
liberty dwells, there is my country," will emigrate to some 
more congenial social atmosphere. And if the interfer- 
ence be not so intolerable as to produce these results, yet, 
in just so far as it has any effect, it is all of this kind and 
by its whole operation must diminish the incitements to 
industry. 

And, on the contrary, just in proportion as every indi 
vidual is free to employ his industry and capital as he 
chooses, and thus both to receive a larger compensation for 
his labor, and also to labor more happily, will be the in- 
ducements to industry and to the investment of capital. 

Hence, we see the mischievous effect of Monopolies. A 
monopoly is an exclusive right granted to a man, or to a 
company of men, to employ their labor or capital in some 
particular manner. Such was the exclusive right granted 
to the East India Company to import into the ports of 
Great Britain or her territories the productions of all coun- 
tries east of the Cape of Good Hope. Such were the priv- 
ileges granted formerly by Spain to particular individuals 
or companies, of importing foreign commodities into the 
ports of her colonies in South America. The result of 
this exclusion was to prevent all other persons, except 
those thus favored, from investing their capital in this 
manner ; and hence, to reduce the value of that capital by 
precisely the amount of this effect. Nor is this all. Those 
who hold this exclusive privilege, being liable to no com- 
petition, may charge for their commodities whatever thej 



FKEEDOM TO LABOR AKD CAPITAL, lOi 

choose. Here is therefore, a two-fold injustice ; first, tlia 
means of the consumer are diminished ; and second, the 
price which he must pay, is enhanced at the mere will oi 
his oppressor. 

We see also the impolicy of obliging an individual, or 
a class of individuals, to engage in any labor or to maJc4 
any investment contrary to tMir wishes. Thus, we are 
told that during the French Kevolution some individuals 
were punished capitally for raising cattle instead of wheat. 
Men may call this legislation, but the true name for it is rob" 
lery. To oblige a man to raise a crop worth fifteen dollars 
per acre, when he would otherwise have raised one worth 
twenty dollars per acre, is just the same thing as to let 
him do as he pleases and then rob him of fire dollars an 
acre afterwards. The wrong is the more intense in the 
former case, inasmuch as it is done under the semblance 
of justice, and by men who claim, as the robber does not, 
ihat they have the right to do it. Such legislation as this 
will in any country soon produce a famine. 

Another form of injury under this class is seen in the 
restrictions upon industry, formerh^, if not now existing 
2n many of the countries in Europe, and which certain 
combinations are now trying to foist upon free Americana 
By these regulations artisans were prohibited the exercise 
of more than one trade ; they were not allowed to exercise 
that trade unless they had served a prescribed apprentice- 
ship ; nor unless they joined a particular trade-society 
and bound themselves to comply with certain restrictions, 
aa, for instance, to sell at particular prices and never to 
employ beyond a certain number of apprentices. Tlia 
result of all this oppression is most iniquitous. It reducea 
the value of skill and industry, the sole estate of the 
laborer ; and places him in the power of those whose inter- 
est it is to reduce the supply as much as possible, in order 
to secure to themselves the most exorbitant profit. Id 
6* 



106 PBODUCTIOIS^. 

such case©, a large amonnt of available industry must b€ 
kept out of employment, and of course production is to 
this whole amount, diminished. The tyranny of tradeS' 
unions, though emanating from the people instead cf the 
gcvernment, produces precisely this effect. 

The same effect is partially produced by any mcde of 
legislation, by which, in consequence of favor shown to 
one pirt}^, which of course another party must pay for, 
men are obliged to exchange an employment for which they 
have peculiar facilities, for another which they do not pre- 
fer and for which they have not the same facilities. The 
manner in which this would lessen the stimulus to indus- 
try has already been illustrated. Thus, should our govern- 
ment, believing that commerce Avas more valuable to this 
country than manufactures, lay a tax sufficient to mee^ 
the expenses of the government upon all American manu 
factures, in order to increase the amount of foreign im- 
portation, this would drive manufacturers out of business 
and oblige them to become merchants and agriculturists. 
I think that every one must see that this would diminish 
the stimulus to labor throughout the whole country. Men 
would not voluntarily engage in manufactures in prefer- 
ence to commerce, unless they found manufactures to be 
more profitable ; and to oblige them to exchange the one 
for the other, is therefore, to oblige them to leave a more 
productive for a less productive mode of employment. 
By all this difference is the country the loser and the in- 
citement to industry diminished. 

We also see the impolicy of Imus regulating consiimp- 
Hon. Such are sumptuary laws ; or those which limit the 
degree of expensiveness in our dross, clothing or equipage. 
These were formerly common in Europe. Such also are 
laws which forbid or restrict the expenditure of money for 
the purposes of benevolence, religion, or anything of this 
sort. Every one must see that one of the incitements to 



INTELLECTUAL AN'D MORAL CULTUEE. 107 

indastry, is the pleasure which men expect to derive from 
expenditure. Now, if this expenditure be innocent, it 
matters not what sort of expenditure it is. Societj haa 
nothing to do with it, and it can in no manner interfere 
ffith it without doing injustice and taking away one of 
the strongest inducements to industry. The only excep 
tion to be made here, respects expenditures which involve 
vices destructive to the individual and disturbing to the 
peace and order of society. 

After centuries of wrong and mischief, the world is 
opening its eyes to the fact that the business of govern- 
ments respecting the relations of cri^ital and labor is sim- 
ply to protect the rights of each and to hold other things 
in even balance for the free working of natural law, — to let 
both alone, giving neither any advantage, but both the 
utmost freedom. They are natural partners, and if not 
interfered with, will spontaneously seek each other aa 
birds mate in the spring for a happy, fruitful union. 

4. The General Intellectual and Moral Oul- 
turfe of a people is an important condition of the har- 
monious cooperation of labor and capital. In every line of 
industry, intelligence in the laborer adds greatly to his effi- 
ciency. Capital too, is more safely entrusted to such as 
have mind as well as muscle, — who see the relation of meana 
to ends and think while they tuorh, — who add to their skill 
in mechanical processes some knowledge of the nature and 
laws of the material and forces with which they work. 

But with reference to the cooperation now under con- 
ideraiion, it is of the highest importance that both par- 
ies as tliey meet, should be capable of taking broad views 
of their common interests and mutual dependence. Sc 
long as the mass of laborers are ignorant and narrow- 
oiinded and thus greatly inferior to capitalists, the dis- 
tinction of classes is more strongly drawn and there is on 



108 PBODUCTION. 

one side, some temptation to take advantage of the snpe" 
rior knowledge, in a way to wrong and oppress the weak 
and dependent ; and on the other side, theiO is a tendency 
even stronger, in the consciousness of weakness and igno- 
rance, to suspect wrong, to chafe and comphiin and make 
unreasonable demands, and to rush madly into violent 
measures. Harmony between the two requires mutual 
respect, and the basis of this mutual respect is self-respect 
on the part of each, which springs fi-om a clear, intelligent 
understanding of relations, rights and privileges. Here 
capitalists as well as laborers need to study first principles. 
If laborers are to be kept in ignorance and held down, a? 
a lower stratum of society, then, no doubt, the despotism 
of slavery, the compulsion of force is best adapted to har- 
mony and order in the processes of production. But all 
history shows that under such a regime, there is little 
chance for improvement, little stimulus to progress on 
either side. Self-mterest, as the main-spring of human 
exertion, is, as we have seen, a prime element of the science 
of political economy. It demands freedom for every man 
to make the most of himself, and to do the best for him- 
self. For a wise judgment, choice and action, every man 
needs the intelligence which comes by education. Sound 
political economy therefore, prescribes the free, general 
education of a people by all means which tend to increase 
and diffuse knowledge, as an essential condition of the 
most effective union of labor and capital for the produc- 
tion of wealth. 

Still more important is the moral culture of a pco])le 
for on it depends the justice of the laws and the force Os 
public sentiment which sustains them, respect for individ- 
ual right, security to property and individual and social 
virtue which alone can make wealth a source of happiness. 
Intellectual cultivation may exist without promoting recti- 
tude and virtue. In this case, however, its only effect is tc 



INTELLECTUAL AiTD MOEAL CULTUEE. 109 

stimulate desire, unbalanced by the love of right, until the 
mad passions of men break down the very structure of society 
and self-interest reduced to pure selfishness, destroys mu 
tual confidence and cooperation, and reigns supreme in 
anarchy, fatal alike to the production and enjoyment of 
wealth. On principles of political economy, therefore, we 
may advocate also, such means of moral culture as the free 
circulation of the Scriptures and the inculcation of moral 
aud religious truth upon the minds of men, through Sab 
bdth-schools and the preaching of the gospel. They have an 
important bearing on the productive energies of a country. 
The argument is very short, but it seems very conchisive. 
No nation can rapidly accumulate or long enjoy the means 
of happiness, except as it is pervaded by the love of indi- 
vidual and social right ; but the love of individual an . 
social right will never prevail without the practical influ- 
ence of the motives and sanctions of religion ; and these 
motives and sanctions will never influence men, unless 
they are, by human effort, brought to bear upon the con- 
science. 

The same principles will defend, on economical grounds, 
the efforts of benevolence on behalf of foreign nations. In- 
telligence, virtue and equitable laws, will have the same 
effect upon other men that they have upon us. They will 
render men industrious, frugal, and consequently rich, and 
raise them from a savage to a civilized state. Just in pro- 
portion as a nation is thus transformed, are its prod acta 
increased ; the riches of the whole world are augmented ; 
the portion of wealth which falls to the share of each man 
is rendered greater ; and the ratio of capital to labor ia 
higher. Just as a nation becomes intelligent and rich, its 
wants are multiplied, and the means for supplying them 
are provided. Hence, it becomes a better customer t3 
other nations ; it gives an additional impulse to their 
industry ; and it repays them for their products with 



110 PRODUCTION. 

whateyer God has bestowed upon it, which will add to the 
happiness of others. 

Some particular measures for the better harmonizing of 
capital and labor will come up for consideration hereafter, 
n another connection. A few general thoughts on the 
present aspect of the question may fitly conclude what wo 
have to say here. It must be acknowledged that through 
greater facility for organization, through false yiews which 
have gained acceptance in the current usage of business, 
and through mistaken legislation in some things, capital 
has heeii unduly favored. It has the advantage, and in- 
clines to oppress labor. Laborers have some reason to 
complain and ask for relief. Justice and philanthropy 
require that every man who fears God and loves )\is fel- 
low-man, should consider the rights involved and lend a 
helping hand to the weak. But, admitting this, it is obvi- 
ous from the view presented, that any measures which 
directly increase jealousy between the parties, any organiza- 
tion which contemplates open war between labor and capi- 
tal, will only aggravate the evil and work damage to both 
sides. Combinations of employers on the one hand to rule 
out fair competition and arbitrarily fix the wages to b« 
paid, — or of laborers on the other, to agree on what they 
will demand, and in general strikes ana trades-unions aa 
ordinarily conducted, are in this light positively mischiev- 
ous. The great interests of both are common and the truo 
relief must come from a better understanding and a coc- 
trolling regard for these common interests. 

On the other hand all measures which tend to increase 
the intelligence and promote the thrift and independence 
of laborers and so to inspire them with self-respect and 
confidence as they come into contact and union with capi- 
talists, are helpful. Cooper ative associations which gather 
up the scattered capital of many laborers to be used in the 



CO-OPERATION OF LABOR AN^D CAPITAL. IH 

employment of the' wn industry, and those which are 
designed to favor • ^onomical expenditures for the meana 
of living and to promote social culture and enjoyment, 
may fitly be commended and encouraged. If capita, has 
gained an advantage by special legislation, this is to be 
counterbalanced, not by special legislation to favor tho 
other side, by attempts to fix the hours and wages of labor, 
but by earnest united protests against all special legisla- 
tion — by insisting on freedom as the fundamental law of 
productive industry. Freedom to work and honest pay for 
honest work well done is the universal maxim of wisdom 
for genuine thrift. The mischief is that thousands are 
studying and struggling all the time, to thrive by the op- 
posite course, reaching on the one hand after the fruit of 
honest work without rendering honest pay, and on the 
other, reaching after dishonest pay for dishonest work. 
The grand correction for this condition of things, is to be 
found in a more sacred regard on all hands to that great 
command uttered by Jehovah at Sinai a few thousand yeara 

ago, *'ThOU SHALT KOT STEAL." 

The discussion of the bearing of Protective Duties on 
Production will be deferred, until we have presented the 
laws of Exchange, with which the principle of such dutiei 
yi ftlso most closely concemedi 



CHAPTER X. 

SECOND DIVISION.— CONSUMPTION 

The Nature of Consumption. — All the processes ol 
Political Economy contemplate actual gratificatimis as the 
ultimate end. This is the legitimate use of wealth. It 
can be attained only by consuming the results of produc- 
tion. Consumption is thus the counterpart of Production, 
and in its widest signification it is simply tlie destruction 
of value. By this is meant not the annihilation of material 
substances, but the extinction of particular forms of 
utility. Thus when bread is eaten, when a coat is worn 
out, when a tree is felled, when a hide of leather is cut up, 
the particular utility which each possessed is destroyed. A 
man, if he had his choice, would rather create one product 
without destroying another, or enjoy a gratification without 
rendering the thing enjoyed useless. But it is a law, estab- 
lished in the nature of things, that we can neither create 
new values, nor gratify our desires except by the destruc- 
tion of existing value. 

It is to be noted, however, that one act of consumption 
does not necessarily destroy all the utilities of an article. 
The linen of a worn-out shirt has still an important utility 
as material for the manufacture of paper. From the ashes 
of burned wood may be extracted an alkali useful in making 
soap. Hence, economy in consumption requires effort to 
exhaust the utilities embodied in every object. 

Kinds of Consumption. —There are several ways in 



INVOLUNTARY CONSUMPTION. 113 

which values are destroyed by the extinction of utility, all 
of which come within the range of our broad definition of 
consumption. Sound economy must have respect to all. 
A general distinction is made when we speak of consump- 
tion as Involuntary or Voluntary; i. e,, as effected 
without or with direct design on the part of man. 

INVOLUNTARY CONSUMPTION. 
Under this head, three specifications may be named, 

1. Natural Consumption; that is the waste of 
utility, the destruction of yalue which is the ivork of nature. 
All things tend to decay. Wood and yegetables rot, iron 
rusts, linen goods become mildewed, woolen goods and furs 
are moth-eaten, grain in store heats and spoils, flour turns 
sour, and all things in use, eyen silver and gold insensibly 
wear away. To this head is to be referred also the destruc- 
tion caused by locusts, chinch-bugs, vermin, etc. '' It is 
estimated that in England the destruction caused by rats, 
mice, insects, etc., amounts to ten shillings an acre per 
year, equal to ten million pounds sterling per annum." 

The degree of this kind of consumption varies with the 
climate of different regions. It appears in one form under 
the influence of heat, in another under the power of cold. 
It is most general and most rapid in tropical countries. It 
is most within the control of man in the Temperate Zone, 
but no part of the world and no form of wealth is wholly 
exempt from this liability. 

Sound economy calls for prudent foresight and diligent 
efLort to prevent as much as possible this kind of con- 
sumption. Yet after the best which man can do, there 
will be much of waste and loss from this cause, that must 
be carefully taken into account in the estimate of wealth 
and in plans for its increase. 



114 COKSUMPTIOK. 

2. Accidental Consumption. — XJnder this head 
may be included those sudden calamities which carry sweep- 
ing destruction before them^ proceeding sometimes from 
men's carelessness, sometimes from the unforeseen and inex- 
plicable forces of nature. Such are great fires, railway- 
collisions, steamboat-explosions, shipwrecks, floods and 
tornadoes, earthquakes and volcanic eruptions, avalanches 
and land-slides. The annual destruction of values in these 
ways is very great. Wealth in every form and in all 
countries is more or less liable to be thus consumed. No 
human art or foresight is competent to prevent it altogether. 

To meet this liability various methods of insurance 
have been adopted. But insurance cannot prevent the loss 
caused by destructive accidents. It only relieves individ- 
uals by distributing the loss wiien it occurs. When a 
house is burned, the destruction of value is absolute; the 
wealth of the community is by so much diminished. If it 
was insured, the impoverishment of the individual owner 
is relieved only by bringing many to share the damage. 

3. Immaterial and K'otional Consumption. — 

These terms are used by Roscher to indicate that decline of 
value which comes from lapse of time or change of fashion. 
Thus the chief value of a daily newspaper is gone when it 
is a week old, though in itself it is the same thing as on 
the day it was issued. So, too, all sorts of fancy goods, 
six months after they are brought to market, lose a con- 
eiderable part of their value by a change of fashion. If 
we remember that value is simply '' purchasing power," it 
is evident that in the light of our science, these causes 
effect a consumption which is as real as that which comes 
from the actual destruction of the articles. Consumers 
as well as manufacturers and merchants must take this loss 
into account. 

This kind of consumption varies much in different 



V0LU:t7TAEY CONSUMPTION^. 115 

nations and with different classes of people. In Germany 
fashions change much less than in Erance. In some 
countries, while the aristocratic and wealthy classes change 
their dress with the fashion, the common people wear their 
clothes till they go to pieces. In general this kind of con- 
sumption increases with the advance of civilization. 

VOLUNTARY CONSUMPTION. 

Tliere are two objects for which men of their own 
purpose destroy existing values. The one is the increase of 
tvealtli hy reprodudion ; the other is immediate gratifica- 
tion. Reproductive consumption demands care, skill and 
labor, while consumption for gratification requires neither. 
Hence the former is more or less irksome ; the latter is a 
present joy. 

We can rarely use the same value for these two distinct 
and opposite purposes. One cannot eat his cake and have 
it to exchange for something else. A man cannot spend a 
hundred dollars for a social entertainment and have the 
same money as capital in his business. On the other hand, 
the value invested in tools and materials for production is 
not available for the supply of food for the table or furni- 
ture for the house. This should be borne in mind by every 
one who wishes to increase his wealth. Every dollar spent 
for self-gratiti cation is withdrawn from its possible place as 
capital. Every dollar saved by self-denial and invested as 
capital, is withdrawn from present enjoyment, but it is in 
the way of multiplpng itself and so providing means for 
greater enjoyment in the future. 

These two kinds of consumption may be best considered 
separately in connection with certain rules of sound 
economy. 

1. Consumption for Reproduction. — In present- 
ing the laws of Production, it was shown that the creation 



116 CONSUMPTION. 

of values requires a union of capital and labor in which both 
are consumed. Sound economy respecting consumption 
for this object prescribes the general rule that the destruc- 
tion of value for tlie desired product he always the least 
which tvill meet the necessity. This rule is applicable to 
both capital and labor. 

As respects capital, the following suggestions are in 
point : 

a. The amount of capital consumed should he as small 
as possihle. In cutting cloth for garments, leather for 
shoes, boards for furniture, etc., there is opportunity for 
great saving or great waste of materials. In agriculture, 
sowing done by drilling saves much seed. Care in the 
selection and adjustment of tools and machinery may also 
save some outlay of capital. It is unwise to employ a 
steam-engine of a hundred horse-power, when only hali 
that amount of power is needed ; or to use delicate cutting 
tools for coarse work. 

h. Tlie hind of capital employed should he of the lowest 
value that will accomplish the purpose. Straw is a cheaper 
material for paper than rags; yet for many purposes, paper 
made partly or wholly of straw serves well. Chemistry 
applied to the arts has introduced cheaper dye-stuffs for 
prints. Research and invention are thus constantly econo- 
mizing the cost of production, and every manufacturer 
needs to avail himself of the frnits of such study. 

The frequent adulteration of articles is an abuse of this 
principle. In such cases, the aim is to pass off goods under 
false appearances, for what they are not ; which is simply 
fraud, never to be justified. 

c. Every utility of the suhstances employed in production 
should he exhausted. There are fragments which may be 
saved. Thus, in the manufacture of jewelry, the filings 
and sweepings of the work-room yield a considerable value. 
There are secondary utilities which may be developed, aa 



ECONOMY 11^ CONSUMPTIOiir. 117 

the refuse of a large slaughter-house furnishes materials 
for soap, candies and glue. Formerly the seed of the cotton 
crop was mostly thrown away ; now from the kernel large 
quantities of valuable oil are extracted ; the oil-cake fur- 
nishes excellent food for cattle and sheep ; the hull of the 
seed yields soluble phosphate of lime and potash for 
manure; and the spent hull makes a white and clean paper 
stock. By realizing these new values, the cost of producmg 
cotton-fibre is reduced. 

A chief advantage of production on a large scale is thai 
it warrants different operations for developing these minor 
utilities, which in small establishments are wasted. 

As respects labor, sound economy suggests three corre- 
sponding rules. 

a. The labor employed sliould he neither more nor less 
than luill effect the intended result. A supernumerary 
laborer wastes both his own time and that of others. A 
deficiency in the number of laborers tends to confusion 
and precludes the most economical division of labor. The 
great advantage of machinery is not that it diminishes 
labor, but that it multiplies the products of a given amount 
of labor and so economizes production. 

b. The grade of labor should be carefidly adapted to 
different operations. All the advantages of division of 
labor come into account here. If an operation requires 
skill and labor worth five dollars per day, it is better to 
give this price to a fit man than to commit the work to an 
incompetent person Avho is willing to work for two dollars 
per day. On the other hand, it is unwise to put the 
superior workman upon that which can be as well done by 
one of less skill at less wages. 

c. The labor paid for should be all performed. To secure 
this, efficient superintendence is all-essential. " Time is 
money,^' says the maxim. Certainly, it is money to him 
who pays money for it. Every hour paid for that is spent 



118 CONSUMPTION. 

in idleness is so much unprofitable consumption — an abso- 
lute loss. Good superintendence often makes all tlie differ- 
ence between success and failure in the conduct of business. 

From these considerations it is evident— 

1. That the economical consumption of capital and 
labor depends chiefly on the careful study and accurate 
knowledge of the nature of the various processes of pro- 
duction. 

2. That all restrictions, however imposed, on the free- 
dom of capital and labor are opposed to economy of 
production. 

3. Economy in the consumption of labor and capital 
promotes the general welfare by saving from waste and 
destruction much that may be made tributary to the satis- 
fying of human wants. 

2. Gonsnmption for Gratification. — The ultimate 
end of all industry is to provide for the wants of men and 
to minister to their happiness. Several kinds of gratifica- 
tion may be named for which the products of industry may 
fitly be consumed. 

1. G rati fie atio7is essential to the prese^^vation of health 
and life. All men require food, clothing and shelter. 
Hence these are called necessities. The term is, however, 
used relatively, not absolutely. The measure and quality 
of goods needed in this form yaries with circumstances, 
such as climate, grade of civilization, occupation and social 
position, and also with the taste, temperament and educa- 
tion of different persons. A bamboo hut, a measure of 
rice and a few yards of cotton cloth suffice for the pariah 
of India. A citizen of our country requires values a hun- 
dred fold greater in order to live decently. Every man 
has, more or less distinctly defined to his own mind, a list 
of tilings which are for him and his family necessities, 



COKSUMPTIOiq^ FOR GRATIFICATIOIir. 119 

things that must be provided and consumed to sustain life 
as they live. 

2. Gratifications luliicJi delight the senses and tastes. 
The mere sustaining of existence comes far short of filling 
out the measure of men's capacity for enjoyment. Such 
things as delicacies for the table, beautiful dress and equi- 
page, ornamented furniture, the products of fine art in 
painting, statuary, architecture and music, public exhibi- 
tions to please the eye and the ear yield rich gratifications 
to people of taste. The desires which run in this direction 
are natural. Their gratification, within due limits, is re- 
fining and elevating and tends to incite invention, quicken 
industry and increase production. Means for these gratifi- 
cations are amply furnished by nature and may be quite 
generally distributed. It is morally and socially healthful 
for people of every class to enjoy some things which they 
esteem luxuries. 

At the same time, there are in this direction dangers to 
be carefully avoided. Appetites unnaturally formed and 
unduly pampered may gain the mastery and lead to indul- 
gences which produce misery instead of happiness. Where 
objects of beauty, the products of fine art, are valued only 
as things that everybody cannot have, and minister chiefly 
to a desire for vain ostentation, they breed discontent, 
envyings and jealousies — the bane of happiness. Fashion 
often rules with despotic tyranny in this department of 
gratification, commanding wasteful and exhausting extrav- 
agances. Self-control and prudent forethought should ever 
regulate both the desires and their gratification. 

3. Intellectual gratifications, from the fit exercise of the 
mind and the acquisition of knowledge. The chief outlays 
here are for books, apparatus, experiments, lectures, etc. 
These affect the higher part of men's nature and yield a 
pleasure exceedingly rich and pure, with a consumption of 
values comparatively small. All are capable of enjoyment 



120 COKSUMPTIOK. 

in some degree from this source, and the capacity for it 
increases as provision for it is enlarged. Individual develop- 
ment is promoted and the charms of social life are multi- 
plied by such gratifications. As a fit substitute, they 
furnish the best check to ruinous sensual indulgences. 

4. Social gratifications through the exercise of hospi- 
tality and all acts of friendliness- in the varied contact of 
men with one another, in the circle of intimate associates, 
in festive assemblies and in extensive travel about the world 
we live in. By the constitution of our nature we are formed 
for mutual intercourse and fellowship and through the good- 
will which seeks to please others, we find a rich gratification 
for ourselves. Such gratifications bind society by strong 
and healthful ties and do much to promote general 
happiness. 

5. Moral gratifications, through the culture of a good 
conscience toward God and toward men and the exercise of 
benevolence. These involve some expenditures for the 
support of religious institutions and in gifts of charity. 
By such expenditures, the noblest capacities of our nature 
are drawn out ; and for the expenditure there is returned 
the richest satisfaction, — a satisfaction not limited to the 
moment but abiding for the life-time of the soul. This 
kind of gratification may come within the reach of all. 
The degree of satisfaction is measured not by the grandeur 
of the religious service, nor by the amount of the beneficent 
gift, but by the sincerity and heartiness of the worshiper 
and the self-sacrificing good-will of the giver. 

The rule of economy applicable to consumption for 
gratification is essentially the same as that laid down for 
reproduction. It may be stated in a general way thus : 
Secure the largest arid hest gratification at the least practi- 
cable co7isumption of values. This rule suggests — 

a. Tliatthe quantity of articles ])ur chased for consump- 
tion le limited hy actual needs. Americans may learn 



ECONOMY lis" GHATIEICATIOKS. 121 

economy in this respect from most European peoples. 
Quite generally our tables are loaded with a profusion of 
food which is simply wasteful. Most of the articles con- 
sumed in a family are rapidly destructible. If more be 
purchased than is wanted^ a portion is apt to be lost by 
decay. The sujoerabundance of anything leads to a free 
and wasteful use of it, especially in the hands of servants. 
Hence, it is ordinarily more economical to purchase supplies 
for the household from day to day, at retail, than at whole- 
sale, though the prices are higher. So, too, it is commonly 
unwise to purchase any article just because it is cheap. 
The first and main question is ahvays, "Is it needed ? " 

h. The consumption sliould he as perfect as possible. The 
surplus of a dinner may provide for the next breakfast. A 
garment outgrown by one child may be made over for one 
younger. Bad cooking is always wasteful. It is good 
economy, therefore, to provide a house with the best cook- 
ing utensils, with fuel that produces most heat, and with 
competent servants. Hence, too, a knowledge of domestic 
economy and a careful superintendence of the operations, 
on the part of the mistress of a family, is of the highest 
importance to home-comfort. 

c. Good judg?mnt is to be exercised in the selection of 
our gratifications. Of two gratifications, that are equal as 
respects the pleasure enjoyed, it is wise to choose the least 
expensive. That which favors physical health is to be 
preferred to that which is deleterious. Those which refine, 
strengthen and elevate our being are to be sought rather 
than those which weaken and degrade us. The natural 
appetites gratified in a natural and normal way, bring rich, 
healthful, enduring enjoyment. These appetites unduly 
pampered, and especially the artificial appetites for narcotic 
and intoxicating stimulants, bring the man into ignominious 
bondage, impose heavy burdens of expense, and tend to 
physical and moral degradation and misery. Also, in our 



122 COl^SUMPTIOK. 

individual gratifications, we have occasion to regard social 
consequences, and both for our own sake and for the good 
of others, to choose those which improve in preference to 
those which demoralize society. 

In general, intellectual and moral pleasures are inex- 
pensive as compared with sensual gratifications and those 
which minister to fashion and vanity. The cost of an hour 
of drunken frolic or gluttonous feasting will buy books for 
a yearns higher enjoyment ; and the sums spent in the 
ostentatious display of dress, at the beck of the despot 
Fashion, would furnish means for many deeds of charity 
which would fill with perennial joy the hearts of both 
giver and receiver. 

The E,eciprocal Belation bet^w^een Production 
and Consumption for Gratification. 

The production of goods is always carried on with 
reference to their consumption ; and ample and rapid con- 
sumption is the true stimulus of production. As another 
has expressed it, '' Material welfare consists in an ample 
consumption; ample production assures abundance; and 
under the law of competition, abundant production assures 
rapid and more equal consumption." 

Extreme frugality would leave goods in the hands of 
producers uncalled for, and at once throw laborers out of 
employment and out of the means of living. Extreme 
luxury would consume resources and hinder the accumu- 
lation of capital necessary for production. The problem 
is to find the golden mean which shall keep the balance 
that sustains prosperous industry by a steady demand for 
its products. The problem can be solved only as each man 
studies it and finds the solution for himself by using his 
means for healthful gratifications, at the same time limiting 
his gratifications by a due regard to his means. 

Wiiere great inequalities of condition prevail, the lavish 



PUBLIC CONSUMPTION?". 123 

expenditure of the ricli in luxurious consumption is no 
doubt a blessing, as it gives employment and the means of 
living to the poor. But for the greatest general good, 
there is a better use of the superfluous wealth of the rich 
by its employment as capital, in a way to give the poor a 
chance to increase their means, and at the same time to 
multiply and cheapen products so that all the people — the 
rich and the poor alike, may have more of comforts and 
luxuries within their reach. 

PUBLIC CONSUMPTION. 

The nature of PuUic Consumption. Under the social 
instinct, mankind gather and live in communities, organized 
and governed with a view to the common welfare. This 
gives rise to certain common wants which are provided for 
by public agents of the government, using means drawn 
from those who compose the society or State by taxation. 

These common or public wants can be satisfied only by 
the destruction of values, just as in individual consump- 
tion. It is to be remembered that the values thus con- 
sumed are a part of the property of individual citizens 
taken for public use. In general, the government has 
nothing to expend but what is contributed by its tax-paying 
citizens. In ancient times despotic governments called 
out thousands of tlieir people to labor directly in building 
city-walls and other public works, and collected from others 
the food necessary to sustain them and the materials to be 
used. This was a direct and obvious draft on private 
property for public use. In mediaeval times, when a sov- 
ereign made war, he called on his vassals to send each his 
quota of men furnished with horses and armor and food 
for their sustenance. Each individual thus felt immediately 
the burden of the values destroyed in public consumption. 
The same thing is involved in the modern system of pro- 
viding for the public consumption by taxes paid in money. 



124 COI^SUMPTION. 

The farmer sells a portion of his grain and with the money 
pays his tax ; the next day the commissary of an army may 
take the same money and buy up the same grain for the use 
of the government troops. Or, if the process is more 
complex and roundabout, it comes ultimately to the same 
thing, — a part of the farmer's crop is consumed, its value 
is destroyed, not for his private advantage, but for a 
public use. 

A clear apprehension of this very simple truth is needed 
to correct a notion entertained by many and often expressed, 
that large publijc expenditures are a benefit, provided only 
the money remains in the country. In all public con- 
sumption it is goods, real values that are destroyed. The 
wisdom of the expenditure is determined by inquiring 
what proportion the benefit attained bears to the value 
destroyed. The benefit, however, may appear in an im- 
material form, as in the maintenance of justice and the 
promotion of general intelligence. The thing to be insisted 
on is that there shall come a real good as large as possible, 
from a destruction of value as small as possible. 

This rule, however, should be interpreted with an intel- 
ligent and liberal forecast. It must not be expected that 
the product of consumption will be always a visible, tan- 
gible substance. The benefit of taxes for the support of 
civil government comes in the better security of persons, 
property and reputation, which in the highest degree favors 
both individual happiness and the accumulation of wealth. 
So it is with taxes paid for general education. The tax- 
payer, whether or not his own children have the advantage 
of the instruction provided, receives a real benefit in the 
improvement of the intellectual and social character of 
his neighbors, by v/hich his property is rendered more 
secure, the labor which he pays for is better performed and 
the demand for whatever he produces is more universal 
and more constant. The expense incurred in giving 



PUBLIC CONSUMPTIOK. 125 

elegance and sometimes magnificence to public edifices ; in 
the public celebration of remarkable events ; in monuments 
erected to the honor of great and good men ; in providing 
public parks and pleasure-grounds ; and in the rewards 
bestowed on those who by discoveries have enlarged the 
bounds of knowledge, or by inventions have signally im- 
proved the useful arts, brings a profitable return in pro- 
moting the health, refining the taste and elevating the 
moral and social character of a community, and inspiring 
the people with sentiments of patriotism and philanthropy. 
Political Economy opposes none of these expenditures ; all 
that she requires is that a valuable consideration be received 
in return for the consumption and that the consumption 
be not disproportionate to that consideration. 

The Purposes to which Public Consumption is properly 
applied may be specified as follows : 

1. For the support and administration of government. 
Law and order are essentials of good society. On them 
depend the security of private property and of personal 
enjoyment. To secure these, legislators, executive officers 
and judges must be wisely selected and supported; build- 
ings furnishing suitable accommodations for the functions 
of government must be erected at the public expense ; and 
a host of minor officers and servants for the details of 
business must be sustained. 

For the positions of chief responsibility, men of the 
highest talent and character are demanded, and salaries 
should be so adjusted as to command the services of such 
men. Yet in a democratic republic like ours, it is im- 
portant, in this respect, to seek and keep the golden mean 
between the foolish parsimony which degrades an office and 
repels the most worthy candidates, and the excessive com- 
pensation which tempts the avaricious and makes the 
pecuniary emolument the chief consideration. 

Through all the grades of public employment, experience 



126 COKSUMPTIOK. 

and character tested are elements of highest value. There- 
fore, frequent changes and the practice of making appoint- 
ments for the civil service as a reward for partisan political 
activity must be regarded as at variance with sound 
principles of economy. Considering the amount and 
variety of the service needed, and the responsible trusts 
involved, efficiency in the administration of public affairs 
demands that a sphere of civil service be opened, and that 
here, as in the military and naval service, there should be 
a preliminary training, tested by thorough examinations, 
and a regular system of promotions according to merit and 
time of service, with emoluments sufficient to encourage 
permanence and fidelity. 

2. For iDorks of general convenience, commonly called 
■puMic improvements. Here are included such things as 
paving, cleaning and lighting the streets of a city, pro- 
viding water-works and sewerage, constructing roads and 
canals, improving harbors, building and sustaining light- 
houses, etc. These works confer benefits upon the whole 
community. They are of such a nature that they must be 
carried out by system on a large scale. It is necessary 
that officers of the government should have charge of 
them, and it is just that they be paid for ont of the common 
treasury. For them also, it is often necessary that private 
property be taken for public use by the right of eminent 
domain which only the government can exercise. 

Some of these works are of such a nature and such is 
the benefit they yield that it is impracticable to derive a 
direct income from the capital expended. These 7mist be 
provided for by public funds. Others of them come within 
the scope of private enterprise, and under wise manage- 
ment may be made to yield a fair profit on the capital in- 
vested by charges for their use. Many writers affirm that 
a government should never assume any of these works 
which individuals are willing to undertake. But private 



PUBLIC IMPEOTEMENTS. 127 

enterprise can do nothing with them without action of the 
government authorizing the works and conferring privi- 
leges and powers for their construction and management. 
Actual experience has reyealed a danger that these powers 
may be abused for selfish interests in disregard of the 
public good. Hence arises the ever-recurring and some- 
what complicated question, What of these public improve- 
ments should and what should not be undertaken by the 
government ? Without entering here into the discussion of 
this question, it may properly be said, that in the light of 
Political Economy, while private enterprise should be en- 
couraged, and corporate rights should be sacredly regarded, 
tlie interests of the wIloU puhlic should aliuays take pre- 
cedence of all private inter est s, and that a government 
should never, by grant or charter, alienate its right or its 
poiuer to guard and serve the puMic interests as they are 
concerned in these ivorks. 

3. For advancing science and diffusing intelligence for 
common interests. Under this head belong exploring ex- 
peditions, astronomical observations, geological surveys, 
coast-surveys, meteorological observations, entomological 
investigation, and the whole post-office system as a means 
of diffusing intelligence and promoting social intercom- 
munication. Some of these expenditures do not contem- 
plate a present imperative need, nor an immediate pecu- 
niary advantage, but they do all yield broad general bene- 
fits of highest importance even in their economical aspect. 
By its system of storm-signals, our National Observatory 
saves, yearly, wealth exposed to the dangers of the sea, 
whose value is a hundredfold that consumed in its main- 
tenance. 

In a thickly-populated country of limited extent, a 
postal system may be made self-sustaining by a very low 
charge for the service rendered, and might be maintained 
by private enterprise. But, no doubt, it is even then safe&t 



128 coKSUMPTioiq". 

and surest under the control of the government. In a 
country like ours, however, so broad and in many parts so 
thinly inhabited, only the government can properly regu- 
late it ; and the common interest justifies a low rate of 
postage, though, for a time, it may make considerable 
drafts on the public treasury. The time is probably not 
far distant when a like common interest in the magnetic 
telegraph, as a means of communication, will require the 
government to take it under its control in connection with 
the postal system. 

4. For the promotion of popular Education. It is ob- 
vious that the prosperity of a country depends very much 
on the intelligence of its people. General education tends 
to a wise application of industry and makes it more eflPect= 
ive. It brings labor and capital to meet more nearly on an 
equality and promotes the harmony of their co-operation. 
It raises the tone of moral sentiment, and favors diligence, 
honesty, and fidelity in all business transactions. It is of 
advantage to every honest man to have intelligent men to 
associate and deal with. For such a common blessing it is 
fit that public funds provide to some extent, and, at the 
same time, that scope be given for private beneficence to 
be exercised for the same end. 

A system of public education mmst provide free schools, 
in which children of all classes may be taught the rudi- 
ments of knowledge. In some communities, no doubt, 
the full benefit of such a system can be secured only by 
the authority of government, making attendance compul- 
sory. 

Many of our American States are provided with gen- 
eral school funds whose income is devoted to public educa- 
tion. These are rarely sufficient to meet the entire expense 
of the schools ; nor is it best they should be, since a local 
interest in each school is best sustained when the people 
themselves contribute something , for theu' support. It is 



EXPENDITURES FOR EDUCATIOl^. 129 

a wise rule wliich makes tlie amount appropriated to each 
district from the general fund depend upon the amount of 
tax levied in the district as well as upon the number of 
scholars. There can be no question, that it is the duty of 
the state to provide for the gratuitous elementary educa- 
tion of all classes. 

Whether the state should set up and maintain by gen- 
eral taxation liiglier mstitutions, to make a scientific and 
professional education also gratuitous, is a question which 
demands the thoughtful consideration of the economist, 
the statesman, and the Christian. We can offer here only 
a few thoughts bearing on the question, No doubt, it is 
needful for the good of the whole state, that some of its 
citizens should be well trained to be leaders of tliought and 
influence in society. It is clear, also, that the actual ex- 
pense of a thorough, liberal education is so great, that if, 
by charges for tuition, raised to the full measure of its cost, 
the burden of giving their own children its advantages 
were thrown entirely upon parents, only the children of the 
rich could enjoy the priyilege. On the other hand, it is 
evident that feiv, comparatively, can have the direct ben- 
efit of these institutions, and it seems unjust that the whole 
community should be heavily taxed to make these advan- 
tages gratuitous for the feiu. Under the control of the 
State, such institutions must be more or less involved in 
the co7iflicts of political parties, in a way unfavorable to 
the most successful prosecution of their work. Under 
such control, also, it is difficult — not to say impossible — to 
adjust the treatment of moral and religious subjects, 
which ought not to be excluded from a course of liberal 
education, so as to satisfy all. Moreover, it is healthful 
for a people, that wide scope be given for the action of 
private heneficence in endoioi7ig institutions of learning ; 
and the education which costs a young man and his friends 
some direct sacrifice is most likely to be appreciated, made 



130 COKSUMPTIOlNr. 

thorough in its processes, and turned to good service in its 
practical use. Such institutions certainly deserve the fos- 
tering care of the State, whatever it may do with respect 
to other institutions under its direct control. 

5. For the care of classes afflicted ~by peculiar calamities 
or deprivations. Hospitals for the sick and for the insane, 
and institutions in which the deaf, the blind, and the 
feeble-minded may by peculiar processes of instruction re- 
ceive an education which will make them useful and happy 
members of society, are here referred to. Our common 
sympathies and benevolence prompt such means of relief 
for the unfortunate. They can be most economically pro- 
vided by the government. Their benefits must be largely 
gratuitous, because such misfortunes come in largest pro- 
portion on the poor. 

6. For the relief of Poverty. The poor we have always 
with us. Every encouragement should be given to the 
exercise of private charity for its relief, because Christian 
beneficence brings a blessing to the giver as well as to the 
receiver. But there is necessity also for some public pro- 
vision for the poor, to meet cases which fall outside the 
range of private beneficence, and also to offer facilities for 
the poor to do something towards their own support. It 
is unwise, however, to dispense either public or private 
charity in a way to encourage pauperism. 

Most persons needing such aid are capable of some 
labor, and possessed of some skill. Their own happiness 
will be promoted by some suitable employment. It is, 
therefore, the dictate of both economy and benevolence to 
care for the poor by giving them profitable occupation. 
Their labor and skill, if judiciously applied to capital, will 
commonly go far towards defraying the expense of their 
support. The State needs to do little more than furnish 
the capita], in the form of a farm or some industrial estab- 
lishment, and put it under proper superintendence. 



KATIOKAL ESPEKDITUEES. 131 

7. For the Nation's Defense. The general good is in- 
volved in the nation's life. While selfishness rules human 
hearts, as it does, especially in international relations, 
exigencies will arise when nothing but military force will 
save a nation's life. Such exigencies must be anticipated 
by due appropriations for forts and armies and navies and 
the various munitions of war. When war is inevitable, 
then no expense is unreasonable which is necessary to 
prosecute it witli the utmost vigor. Yet it must ever be 
remembered, that war is always destructive, terribly de- 
structive of both wealth and men who produce wealth. 
The policy of maintaining constantly great standing armies 
is to be deprecated as exhausting to a nation's wealth, in- 
citing to national quarrels, and burdensome and embar- 
rassing to the productive energies of a people. 

With reference to the whole range of public consump- 
tion, sound economy dictates two plain and simple rules : 

1. The style and scale of national expenditures sliould 
le such as to elicit the respect and honorable pride of the 
people luithout useless display. 

2. The methods of national expenditures should he such 
as to hold all agents of goveriiment to a direct and strict 
responsibility, and to insure the utmost fidelity in the diS' 
charge of all trusts. 



CHAPTEE XL 

OVEE-PEODUCTION. 

It has become quite common to ascribe a general stag- 
nation of business and paralysis of industry to Over- 
production. It is pertinent, therefore, just here, to take 
up this term and try to understand what it means and 
what it involves. 

1. What is over-productio7i ? The ultimate object of 
all productive industry we have seen to be the gratification 
of human desires. The normal production of any article 
is therefore limited first by the extent and intensity of men^s 
desire for it. Labor spent in making things which nobody 
wants is labor thrown away ; and of articles which are 
desired, there is over-production wlien actual needs are 
more than supphed. 

Another thing is to be regarded. Many persons may 
desire things which they are unable to obtain. The actual 
consumption of goods is thus limited, secondly, by the 
ahility of those to whom they are oflTered to gratify their 
desires. These two elements, desire and ability, combine 
to define the demand to which the supply of products must 
ever be adjusted. Things made and thrown on the market, 
may not be sold, either because people do not want them 
or because they cannot buy them. In a general way, it 
may be said, then — 

Over-production is producing more than is desired or 
more than those who desire can pay for. It is a disturbance 
of the balance between sup])iy and demand by excessive 
supply or by deficient demaud. The term under -consump- 
Hon might be used and mean the same thing. 



OVEK-PRODUCTIOIS". 133 

2. What causes tend to over-production ? We may find 
answers to this question on the side of active production 
or on the side of inactive consumption, as one or the other 
may disturb the balance of supply and demand. 

a. Increased facilities for production tend to over-pro- 
duction. These may come through the beneficence of 
nature, as when an unusually fruitful season multiplies the 
products of agriculture so as to overstock the market. 

In our country, rapid immigration brings under culti- 
vation large areas of wild land, and the stock of food- 
products is soon increased quite beyond the ratio of in- 
creased population. The same cause swells the number of 
mechanical laborers, at the same time with the steady 
increase of capital ready to employ them, and so manufac- 
turing industry is stimulated to excessive production. 

And over all, the genius of man is rapidly inventing 
labor-saving machinery and economical processes which 
greatly increase the proceeds from a given amount of labor 
and material. 

h. Large profits from a particular industry lead to over- 
production. For this there may be a real basis in actual 
success, as when large returns from raising hops in one 
year led the farmers to devote their fields to that crop till 
the market was glutted. On such a basis, however, and 
often without it, imagination kindles illusive hopes, and 
through restless speculation things are overdone. 

c. Wliatever restricts desire has the same tendency. 
Here we turn to the side of diminished consumption. The 
wants of an ignorant, uncultivated people are few and 
simple, and their consum]otion of products is correspond- 
ingly small. At the same time, the uncommon profits of 
trade with such people prompts the production of more 
goods than can be disposed of. 

The changes of fashion are continually turning men's 
desires away from things old and famihar to new things, 



134 COIs^SUMPTIOK. 

and as demand ceases the stocks of goods out of style are 
unsalable. Articles in common use are improved by new 
inventions, and nobody any longer wants the inferior sort. 
A commercial revulsion creates a general panic which 
puts people on the practice of excessive economy. Un- 
certainty and distrust respecting the future prompts to 
reduced expenditure. Unreasonable fears suppress or over- 
rule natural desires, and the demand thus curtailed leaves 
large supplies unconsumed. 

d. Whatever reduces the ahility of consumers has the 
same effect. A had season, causing extensive failure of 
crops, disables thousands from purchasing ordinary luxuries 
and even comforts. 

High prices place goods in themselves desirable beyond 
the reach of many, and so consumption is checked. 

The stagnation of husiness which attends a time of 
panic throws many out of employment and curtails all 
incomes, thus compelling reduced consumption. A morbid 
imagination at the same time aggravates the difficulty, and 
many stint themselves more than is necessary. The balance 
between production and consumption is never held even, 
for any length of time. It moves in a see-saw, each side 
alternately up and down, and either extreme causes disas- 
trous results. 

e. Whatever obstructs the free transportation and ex- 
change of products limits the market so that it may be 
easily overstocked. Such obstructions we find in bad roads 
and the lack of water-ways and railway facilities. Many 
think that a high tariff, by ruling out the products of 
other countries and raising the cost of home products, cuts 
off a nation from the wide world market into v/hich, as the 
great ocean, the surplus of every nation naturally flows so 
as to maintain the equilibrium of universal exchange. 

3. How is over-production to he relieved'^ 

a. The first and obvious answer to this question is, Let 



BELIEF FOR OVER-PRODUCTION". 135 

the supply be reduced by suspending or cur taili7ig produc- 
tion till the surplus of products is disposed of. But this 
involyes the throwing of laborers out of euiployment and 
of capital out of productive use, or the change of both 
labor and capital from one form of industry to another, at 
a loss to all concerned. Moreover, it is not easy to combine 
producers for such a general suspension. Yet in spite of 
the suffering and loss and difficulty, the natural effect of a 
commercial panic is to do just this thing — to produce a 
quite extensive sus^Dension or restriction in production. 

1). The alternative is to increase tlie numler of consumers, 
or, in other words, to extend and stimulate demand. This 
may be accomplished in several ways. The desire for an 
article may be increased by making it and its uses known. 
This is the object of public exhibitions and wide adver- 
tising. 

A reduction of price brings an article within the means 
of a greater number of people and so multiplies consumers. 
A reduction of ten per cent, in price often adds fifty per 
cent, to the number of consumers. It is accepted now as 
a maxim of wisdom to seek a small per centum of profit 
on extensive sales rather than a large per centum of profit 
on a restricted sale. 

The surplus of products may be relieved by exportation 
to foreign lands. Whatever removes the obstructions just 
referred to, opens a way for the excess of products to find 
consumers, and brings the demand up to an equilibrium 
with the supply. 

So, too, the better compensation of laborers and the 
encouragement of thrift among them, and abstinence from 
useless and impoverishing indulgences, will bring to many 
the ability to obtain what they want and would gladly 
consume. 

And whatever quiets anxiety and removes unreasonable 
fears and inspires mutual confidence, gives free scope to 



136 co:n"sumptioi?". 

desires for a time restrained and quickens active consump- 
tion. The demand thus elicited soon exhausts the surplus 
and gives a stimulus to new activity in production. 

With respect to specific commodities, the application of 
the foregoing considerations is obvious. Such relative over- 
production recurs for the reasons stated time and again in 
every branch of industry, and the relief for it is generally 
to suspend production for a time, or to transfer labor and 
capital from one kind of production to another. But — 

4. Can there he a universal over-production ? When a 
general depression of business is attributed to this as its 
cause, an over-production of all commodities is implied. 
In this year (1886), and for some time previous, productive 
industry throughout all the countries of Christendom has 
been embarrassed and depressed. It is quite evident that 
trade is dull, that large stocks of goods of almost every 
kind are waiting for purchasers, and that the prices of 
goods generally have been so reduced as to leave little or 
no margin of profits to the producers. The fact that this 
is the prevailing condition not in one country only, but in 
all the countries in which industry and trade have been 
most active, seems to indicate a common cause. Many, 
therefore, are disposed to affirm that the trouble comes 
from excessive production, universal. 

ISTow, it must be admitted that, in some sense, the sup- 
ply of commodities is quite generally in excess of present 
demand. But the m.ain question is, whether this is itself 
the cause of the stagnation of business, of which it is cer- 
tainly a phase and sign, or rather, an effect of other causes. 
This question will be determined very much by a careful 
distinguishing of the two elements of demand referred to 
in the outset, viz. : the extent and intensity of men's de- 
sires and the means at their command with which to pur- 
chase what they desire. 

Can we say that more commodities have been produced 



UNDEE-COKSUMPTIOIS'. 137 

than are requisite to satisfy the actual needs and desires of 
men? Is there over-production in this sense ? While we 
see in every great city, amid signs of abounding wealth, 
thousands of people only half-fed, half-clothed, miserably 
sheltered, — while millions in a savage or half-civilized 
state, all over the world, lead a wretched existence, lacking 
all things essential to bodily comfort, mental and moral 
development, and social enjoyment, — while, by what seems 
a fixed law of human nature, every step in the elevation 
and refinement of individuals and communities forms new 
tastes and multiplies wants, so that the desires of men are 
ever in advance of all devices and products for their grati- 
fication — in view of these things, we must conclude that 
the present wants of mankind are enough to exhaust at 
once in actual consumption the entire surplus of goods 
which now gluts the market, if only they who need could 
get them. Distributed so as to meet present desires, the 
whole stock of goods to-day accumulated in London or 
New York would probably no more than suffice to satisfy 
the desires of its own population. The world's desires cer- 
tainly outrun, and seem destined ever to outrun, the pro- 
duction of things for their satisfaction. In this sense, 
universal over-production appears impossible. 

Looking now at the other element of demand, viz., the 
ability to purchase, it is evident that what constitutes this 
ability is the possession by those who have wants — of com- 
modities of some kind, the fruits of production. Each In- 
divid uaFs means of paying for other people's products, 
which he wants, consists of products of another kind 
which he himself possesses and can spare. Money may be 
used in making the purchases, but money is a mere instru- 
ment to facilitate the exchange which is, in reality, always 
an exchange of one commodity for another. The pressing 
wants of men are for various objects, all the products of 
industry. To secure these objects, they must have to offer 



138 COl^SUMPTIOls'. 

other products of industry. A poor man is hungry foi 
bread. He cannot make bread, but he can make shoes. 
"Grive me a chance," he. says, "to make shoes, and I can 
pay for all the bread I need." So it is all round the circle 
of diverse forms of industry. Active production multi- 
plies the means of satisfying men's wants, and active pro- 
duction multiplies the means of pajdng for things needed. 
Mr. Mill has well said, "Could we suddenly double the 
productive powers of the country, we should double the 
supply of commodities in every market ; but we should by 
the same stroke double the purchasing power. Everybody 
would bring a double demand as well as supply ; everybody 
would be able to buy twice as much, because every one 
would have twice as much to offer in exchange." 

Under such active production, the balance between dif- 
ferent articles may be disturbed ; one thing or a,nother may 
be produced in excess, but this very soon appears, and by 
the natural working of the law of supply and demand, the 
consumption of the superfluous article is increased, while 
its production is curtailed, and the balance is restored. 
But how, under this view, can there be universal over-pro- 
duction? How can hard times, a general stagnation of 
business be properly attributed to the activity of produc- 
tive industry ? The cause of hard times is not over-pro- 
duction, but under-consumption : and the under-consump- 
tion is due to the inability of thousands who are in want 
to purchase what will supply their wants, and this inability 
can be relieved only by some fresh impulse to active pro- 
duction. 

This is not the place to consider at length the causes 
of this inability to iiurchase. Enough to say that they 
lie back of the simple law of supply and demand. In gen- 
eral, they proceed from the unequal distribution of wealth, 
the unequal division of the proceeds of industry between 
capitalists and laborers, fluctuations in the value of that 



OVER-PRODUCTIOK. 139 

wliicli is used as money, fitful expansions and contractions 
of credit, artificial interference with, the freedom of trade 
— all tending to give a speculative character to all business 
operations. During the period of active speculation, men's 
imagination runs away with their Judgment, and an un° 
natural and unreasonable stimulus is given to production. 
As surely as the unnatural excitement of the drunkard's 
debauch is followed by headache and languor and utter 
prostration of the whole system, so surely must the un- 
natural excitement of the period of speculation be followed 
by stringency and failure and depression through the 
whole system of the world's industry. The hard times are 
due to this reaction, and the real causes of the disturbed 
balance between supply and demand are to be found in the 
abnormal conditions of the period of illusive prosperity. 

These considerations forbid us to attribute a general 
and long-continued depression of industry to over-pro- 
duction as its main cause. At the same time, we must 
recognize the fact, that the multiplied inventions for in- 
creasing the efficiency of labor and the concentration of 
industry in large manufacturing establishments, during 
the last fifty years, have given an unwonted stimulus to 
the production of commodities. This side of economics 
has engaged attention and study almost to the exclusion of 
other branches of the science. A profusion of goods has 
been thrown upon the market, without due consideration 
of the measures necessary to extend the consumption of 
goods in due proportion. Prosperity will return and be 
abiding only as the balance shall be restored, not by re- 
stricting production, but by increasing consumption. The 
thing most essential to accomplish this is an adjustment of 
the relations between capitalists and laborers, and such a 
reform in the prevalent habits of laborers as shall secure a 
fairer division of the profits of industry and enable the 



140 CONSUMPTION. 

wage-earners, as a class, to purchase more of the substan- 
tial comforts which the improved processes of production 
are rapidly creating. It is a hopeful sign, that earnest 
thought is now turned on this problem. Its true solution 
will tend to bring all classes to share more fully in the 
good things so easily and abundantly produced. 

When the range of consumption is extended, in pro- 
portion to increased and ever-increasing production, — 
when production and consumption are both steadied by a 
sound and stable currency, a regulated credit and com- 
mercial exchange at h®me and abroad, set free from the 
unnatural restrictions of unwise legislation and oppressive 
monopolies and unfair competitions, then we may look for 
the golden age of industry and of human enjoyment, the 
world oyer. 



CHAPTER XII. 

THIED DIVISIOJSr.— DISTEIBUTIOK 

Ownership of Liaiid, — Before proceeding to the 
particular consideration of matters pertaining to the third 
division of our science, a preliminary question demands at- 
tention. It has respect to the ownership of land. 

We have seen that the original source of iDealtli is the 
'bounty of God in nature. The bounty of nature embraces 
all the many and diverse useful things which are in the land 
and in the seas, in water, in air and in light, and a.li subtile 
forces like gravitation and electricity whose abiding place 
science has not yet defined. Over all material nature man 
is set in supreme control, endowed with capacities to dis- 
cover and unfold its unmeasured resources. 

The bounty of nature, in itself considered, comes from 
the divine hand, unmarked by any sign of appropriation 
to individuals or nations or races, — a free gift for the good 
of all men. Nature's invitation is broad and free to all to 
come and possess her gifts. 

But the act of appropriation involves some labor, and 
for the most part, the objects of nature require some modi- 
fication by further labor to make them available for men's 
use and benefit. This brings into recognition what we 
have called the secondary source oftvealth, viz, human labor, 
essential to bring forth nature's bounty in form and time 
and place suited to meet the desires of men. 

When one applies labor to the objects of nature to make 
them fit for men's service, a right of property is established. 



142 DISTRIBUTION. 

The simple^ radical idea of the right of property is just 
this, that a man's faculties and powers are his own and 
that loJiatever lie produces hy the exertion of Ms powers he- 
longs to him. The act of gathering the spontaneous fruits 
of the earth makes them the property of him who gathers. 
He who cuts down a tree and by long and patient labor, 
shapes it and hollows it out into a boat, becomes the ow^ner 
of the boat. His labor is identified with the material on 
which it was exerted and is henceforth inseparable from it. 
Labor thus appropriates the free gift of nature and a title 
of» ownership is established over both nature's gift and what 
man has produced from it. The two ideas of titility in the 
natural object and of appropriation by modifying labor are 
combined in the term wealth, and our science knows noth- 
ing as wealth which is not owned by somebody. 

Most of those things which minister to men's wants 
and enjoyments are drawn from the soil which covers the 
surface of the earth or from the rocks which lie beneath, 
and so are identified with the land. Yet land, in its nat 
ural state, yields very little for the sustenance of men. The 
most useful properties of the soil are made available only by 
the labor of tillage. The wild grasses and grains which 
grow spontaneously are food for animals, but they must be 
modified by culture before they become fit food for men. 
Chemical analysis may reveal and separate the inherent 
properties of the soil, and trace the elements which enter 
into the life of different plants. The way is thus prepared 
for that culture which eliminates from the soil things nox- 
ious and introduces elements favorable to its productive- 
ness. And yet the best properties of the soil can be turned 
to practical use only as they lie embedded in the land, com- 
bined according to nature's laws ; and the labor of cultiva- 
tion which modifies actual results must be laid out on the 
plants as they gTow on the land. Hence, soyne appropria^ 
Hon of the land itself is necessary in order to the develop- 



LABOR APPEOPEIATES NATURE'S GIFTS. 143 

ment of nature's hidden bounty and to the appropriation 
of the fruits of labor expended on it. He who clears and 
plows and sows and tills the land must own the land cer- 
tainly until he reaps. Every step in his progressive labor 
confirms and enlarges his right of property in the product 
of that labor^ and the land must be his till he can realize 
that product. 

But this is not all. The Icibor put upon the land reaches 
on ieyond the immediate crop produced. The clearing oft 
of the forest is a preparation for all future crops, and gives 
to him who performed that labor a claim on the successive 
crops of after years^, — a claim secured only through his 
ownership of the land itself. Wise and careful cultivation 
and all that is done by fencing, draining, or any other 
method of improvement, add to the land a permanent capa- 
bility of fruitfulness. The real product of such labor is 
joined inseparably to the soil. In the crop that folio v\^s at 
once, the laborer gets but a part of what he has wrought. 
By right it is all his. Yet how can he be secure of it, ex- 
cept as he holds possession of the land ? 

The peculiar properties of iron are a precious gift of 
nature. But the gift is hidden in an ore which of itself, 
as iron ore, brings to man no benefit whatever. But when 
a man by labor has dug the ore and extracted the metal 
and formed it into an axe or a plough-share, he has made a 
useful thing, and that thing is his by indefeasible right. 
He did not make the properties of the iron, but he gave 
to those properties their utility, and so made himself the 
owner of both tlie original gift of nature and the utility his 
labor imparted. Nobody questions the title of ownership 
in this case. Why should the property-right of him who 
by subduing and cultivating the land has turned the hid- 
den, useless gift of nature in the soil into a source of bless- 
ing be any more questioned? The only difference in the 
two cases is that the ore is movable, while the land is fixed. 



144 DISTRIBUTION. 

!rhe principle, universally recognized by man's innate sense 
of right, that the labor which improves a gift of nature ap^ 
propriates the gift as iimll as all that is made of it, is the 
Bame in both. Thus the right of private ownership of land 
rests on the same basis of natural law which sustains the 
right of property in every form. 

But the question is not one of abstract right alone. 
We may take a more comprehensive and practical view of 
the matter. Here is the land, so ranch on the face of our 
globe, full of the bounty of God — latent wealth — for the 
good of mankind. To bring out that latent w^ealth the 
land must be in some sense appropriated and worked. The 
question of practical expediency is, Hoto shall the land he 
appropriated so as to bring out of it the largest measure of 
wealth, and in both its production and use, promote to 
the utmost the cheerfulness, the mutual good-will and the 
best welfare of all ? 

Men have tried various methods to solve this question. 
The economy of savage Ife appropriates .1 portion of land 
to the tribe to be held as the common hunting-ground of 
its members. This is commtinisin pure and complete. 
The sum total of wealth thus produced is the spontaneous 
product of nature. Under this system, the land yields a 
very meagre support to a few scattered, miserable people. 

The old Feudal system put extensive tracts of land into 
the possession of a few lords, to be worked by men occu- 
pying it for the time as vassals or serfs. Under this sys- 
tem little v/as done to improve the land or to develop its 
best resources, and the accumulation of wealth was slight 
and slow. By the side of rude, lordly extravagance, pov- 
erty and wretchedness were the lot of the people generally. 

In England, we see that policy still perpetuated in the 
large estates of « landed aristocracy. These are divided 
and rented to farmers, and worked by laborers whose con* 



KATIONALIZATIOK OF THE LAND. l45 

dition is little better than that of the ancient serfs. Cer- 
tain influences there have stimulated agricultural industry 
to the improvement of the soil and the increase of its 
products ; but the cry of the oppressed laborers goes up 
loud and strong against the hardship and injustice to which 
they are subjected. 

Schemes for the Nationalization of the land have been 
again and again proposed by social reformers. This meas- 
ure, as recently advocated by Mr. H^enry George, would 
make the State sole proprietor of the land within its do- 
main, which the people should occupy as tenants merely, 
on terms of rent to be paid to the state. This is an ideal 
scheme never yet tested by actual experiment. It implies 
a government capable of exercising a. paternal oversight of 
all the industries of its subjects. Only a monarch en- 
dowed with divine attributes would seem competent to 
such a charge. The inauguration of such a scheme, es- 
pecially where private ownership of land is recognized and 
established, involves difficulties which seem insurmountable. 
What we know of human nature raises the apprehension 
that if inaugurated, the scheme ivould gender collisions of 
i?iterests, more extreme and violent than any which noM' 
disturb the peace of society. Moreover, it would inevitabl}* 
foster political corruption, especially under a free, popular 
government. 

In the first settlement of our country, some colonial 
experiments were tried in lands held in common, but evils 
actually experienced led to their speedy abandonment. In 
one or two of the colonies, large tracts of land were 
granted in a way which tended to establish a landed aris- 
tocracy, but the evils of this course were soon apparent, 
and it was soon arrested. Under the steady development of 
free, republican institutions, American common sense has 
universally adopted the system of a division of land to ie 
held as private property in fee simple, unencumbered by 



146 DISTRIBUTION. 

laws of primogeniture or entail. Experience has demon- 
strated the wisdom of this policy. Slavery at the South 
counteracted this policy and was a serious drawback on the 
improvement of the land and all healthful industry. But 
slavery is abolished, and the breaking up of the great 
plantations is sure to follow, and ensure to that section 
of our country a prosperity such as it has never before 
known. I^o doubt our government has made a serious 
mistake in the disposal of the public lands by making 
large grants to corporations, and by allowing individuals to 
purchase extensive tracts, thus instituting what might 
grow into land monopolies. But the mistake is now j)er- 
ceived, and the popular voice is clear and strong against 
this policy. All past experience and the genius of our 
institutions dictate that the title officii oumersliip le, as 
generally as possible, held dy those ivho occupy and improve 
the land, subject only to the claims of the government on 
this as well as all other property for its support. 

Such an apportionment of the land dignifies the laborer 
by charging him with a personal responsibility, for making 
the most of that which is his own, and teyids to that equality 
which is tlie most important feature of a free republic. 

The personal supervision, skill and labor of ovmers will 
secure the highest productiveness of the ?«n(i, having respect 
to its fruits in future years, as well as to the crop imme- 
iliately contemplated. The general increase of wealth is 
thus best assured. 

They who thus exert their own powers on the land 
which is their own, in the confident expectation that the 
products of their labor will be their own, will be cheerful 
worlcers, full of good- will toward their fellow-men, making 
their homes centres of happiness, and promoting the welfare 
of the whole community in the consciousness that their 
individual interests are identified with the cO"mmon in- 
terest. Such a spirit no slave, no hired servan*- \o mere 



TITLES IN" PEE-SIMPLE. 147 

tenant holding nnder a landlord or under the state can 
have. 

We have considered the question thus far only with 
reference to land appropriated for agricultural imp^-ove 
me7ifs. Most of the land in every country must he thus 
occupied ; and the fundamental principles are most simply 
and clearly illustrated in their application to land so appro- 
priated. But the same principles apply tvifh equal truth 
and justice to lands devoted to all other uses. The lahor 
put forth to discover, open and extract the mineral treaS' 
ures which nature has hidden beneath the surface of the 
earth, gives to him who toiled for this end, a valid title to 
both the stores he has gathered and the land under vfhict 
they lay, the control of which was necessary to their un- 
foldiog. Governments have sometimes claimed for them- 
selves a rent for mining lands, in the form of a royalty or 
percentage of the products. But this usage is passing 
away, as experience in this and other countries has shown 
that for the public good, as well as for private advantage, 
the exploitation of mines is best conducted under the 
principle of individual ownership. 

So it is with the site of a water-power, or a manufac- 
tory, or a house for residence, or of a thickly peopled city, 
or the land traversed by a railway. Lahor spent 07i the 
improvement in either case furnishes equitable ground for 
personal ownership, and in general, the public welfare is 
best promoted in connection with all such improvements, 
where private interests are secured by titles in fee-simple to 
the lands. Abuses may spring up under this, as under 
every other system of our social life, but they call for cor- 
rection by proper safeguards rather than for the radical 
subversion of the system. 

The chief objection to this view arises from the fact 



148 DISTEIBUTIOIT. 

that Tery generally the progress of population, wealth and 
civilization gives increased value to land without the laying 
out of additional labor for its improveoient. This presents 
opportunity and temptation to some to get a title to land 
which they hold only for purposes of speculation, neither 
cultivating it themselves nor allowing any one else to culti- 
vate itj content if they may at some future day reap the 
fruit of other men's labor in the enhanced value imparted 
by the settlement and improvement of adjoining lands. 
Large fortunes have thus been realized without exertion by 
simply holding possession, especially of city lots, and 
waiting for a rise. This must be acknowledged to be an 
evil and a wrong. But it pertains not to land alone, but 
to all kinds of property, and would probably arise undei 
any conceivable mode of disposing of the land. In th^ 
original sale of lands owned by the government, this evil 
might be guarded against by carefully devised checks and 
limitations, and afterwards by special taxation laid on land 
unimproved after a defined period. Without such special 
action, the contemplated speculation often proves a disas- 
trous failure, and in the newer parts of our country not a 
few so-called land-poor are to be found ; that is, men kept 
in straits all their lives by owning too much land. On the 
other hand, the expectation of such an increase of substan- 
tial value with the growth of the community and the 
general advance of civilization makes the owners of land 
content with a less present return in the way of rent or 
otherwise, than an investment of the same amount in some 
other form of capital would yield. 

The liolding of lands in fee simple, with no checks on 
their free transfer, and with unfettered laws of inheritance, 
tends to equality of condition and to a distribution of 
land to such as will occupy and improve it for themselves. 
This, in- the long run, secures the liigliest productiveness 
of wealth and promotes the liigliest happiness of a people. 



DTSTEIBUTIOK OF RESPONSIBILITY. 149 

The chief arguments urged against the private owner- 
ship of land, have equal force against private property in 
every form. If the radical change proposed with respect 
to land should be made, it would, we believe, inevitably be 
followed by the speedy subversion of all property rights as 
BOW recognized, and bring in a reign of anarchy, destruc- 
tive of existing w^ealth and paralyzing to all productive 
industry. The common interests of men in society are 
best subserved by a distribution of responsibility, such as 
combines the particular care of individual interests into 
the highest efficiency of action for the general good. 
Human civilization has been advancing steadily towards 
the full recognition of rights which pertain to every man 
as a man, and the adjustment of all personal rights, so as 
to secure the harmonious co-operation of all for the highest 
good of all. A perfect result has not yet been attained. 
The great obstacle in the way is the interference of a nar- 
row and mean selfisluiess, which creates jealousies and an- 
tagonisms and wrongful oppression and violent resistance. 
This evil is to be removed not by the radical upheaval of 
society — not by trying to crush out that instinct of self- 
interest which, by the constitution of our nature, is the 
main-spring of human exertion, but by the culture and 
development of that instinct under the Christian law of 
love, till in all the associations and mutual relations of 
men, it shall be brought into free and vigorous exercise, 
expanded to the measure of the golden rule of Christ. 

This third division of our science, Distribution, brings 
very much into view the conflict of individual self-interests. 
The most difl&cult problems of the whole science of eco- 
nomics arise in this division, and in the study of them social 
and ethical principles have an important place. The key 
to the solution of these problems is that golden rule just 
referred to. If our science is to be of any use to the 



150 DISTRIBUTIOIT. 

world, we must consider here not only what is, but whai 
ought to ie. The principles which regulate the production 
of wealth have the character oi physical laws, as they' rest 
on physical conditions which are to a great extent inde- 
pendent of human agency. But the distribution of wealth 
is under human control, and may be regulated by such 
principles and rules as men may desire and choose. Social 
conditions and moral principles and expediency as the 
means of harmonizing the two must have due consideration. 
A crisis has come which gives special importance to 
ihis branch of economical science. Throughout the in- 
dustrial world, issues have been drawn in the cojiflid he- 
tiveen Lahor and Capital, which are full of danger to the 
world's peace and welfare. They can be properly settled 
only by mutual forbearance and wisdom, and an intelligent 
and comprehensive consideration of the interests involved, 
on the part of all concerned. 

Definition. — Distrihution is that hranch of Political 
Economy loldch defines the principles and rules according 
to wliich the proceeds of industry are to he distributed 
among the parties concerned in their production. It ini plies 
the two ideas of individual property and of joint exertion. 
If no individual could be the exclusive owner of anything, 
there would be no place for any distribution of wealth. If 
men lived in complete isolation, each providing for his own 
wants by his own exertion, there would be no common 
products to be distributed. But men are made for society 
with each other, and in society no man liveth for himself 
alone. Mutiial dependence and mutual helpfulness is the 
fundamental law of human society. 

The Scope of tMs Division. — We have seen that 
in order to the production of wealth, labor must be joined 
with capital ; also that various kinds of labor and divers 



SCOPE OF DISTRIBUTIOlf. 151 

forms of capital are inyolved ; and further^ that in every 
process of production, there must be a consumption of 
both labor and capital, out of which new forms of wealth 
appear with increased value. In some cases, the same 
person both owns the capital and joerforms the labor. 
More commonly, however, those who labor, work with 
capital which belongs to others. In all cases, the profits — ■ 
that is, the actual increase of value— can be properly 
estimated only after due allowance is made for capital 
consumed, and for the reward of both laborers and 
Capitalists. 

Moreover, the general productive industry of a people, 
in its wide range, includes, as we saw, many kinds of labor, 
such as that of the learned professions, which are indi- 
rectly, yet really, concerned in production. Evidently, the 
compensation of all such labor must be derived from the 
results of production, and must be adjusted to some defined 
and recognized principles. 

It is obvious, also, that tne protection of good govern- 
ment, giving security to persons and property, is essential 
to prosperous industry, and that the means for the support 
of the government must be drawn from the proceeds of 
productive industry. This item, therefore, must be in- 
cluded with those just named in the estimate of expenses 
of production. 

Then beyond these, is the surplus of wealth produced 
over all consumed, that is, the profits, the anticipation of 
which is the chief stimulus to industry and enterprise. 
The question, to whom and in what proportion shall these 
profits be assigned, is one of prime importance, for the set- 
tlement of which our science should define some fixed 
principles. All of these matters are properly embraced 
within the range of this third division of our subject, and 
will be distinctly treated of, each in its place and manifest 
relations. 



152 BISTKIBUTIOIT. 

Connnunism and Socialism. — Among the most 
civilized and enterprising nations, the laws of Distribution 
are based on the recognition oi private property. In view 
of inequalities which seem to spring out of this system, 
theories have recently been broached which assail private 
property and demand its abolition and a radical revolution 
which shall establish society upon some other basis. To 
these theories the terms Communism and Socialism have 
been applied, without a very well defined distinction be- 
tween them. Letting the common term Sociahsts designate 
those who advocate such ideas, two classes may be distin- 
guished. First, men like Owen and Fourier, whose plans 
for a new order of society contemplate voluntary associa- 
tions to be framed on the scale of a village community, 
holding all things in common, and applied to a whole 
country by the multiplication of such communistic circles 
as units of organization. Second, men like Karl Marx and 
Louis Blanc, who would have the working classes, or some- 
body in their behalf, take possession of all the property of 
the country, to be administered for the general benefit, 
the whole productive resources of the nation being under 
the management of the general government, resting on 
universal, equal, direct suffrage by ballot. It is enough to 
say of these theories that experiments on the first have yq~ 
suited only in sad failures ; and that the second, untried 
as yet, proposes for some existing evils a remedy which 
must, unless human nature is completely transformed, 
prove worse than the disease. Sound, practical economy 
must reject these crudities. 

The Parties to be Kecognized. — In any branch 
of industry and in the general productive industry of a 
nation, three parties are to be considered. First, the 
Laborers of all grades whose energies, physical and mental, 
are directly or indirectly engaged. Second, the Owners 



SUBDIYISIQ-N^S. 153 

of the Capital, which is the fruit of past labor, saved and 
now combined with present labor for a joint result. 
Third, the Government which draws on the proceeds of in- 
dustry generally, for its own maintenance, with a view 
alike to the security of the rights of all in the processes of 
production, and to the highest happiness of all in the en- 
joyment of its fruits. In the cases before referred to, 
where the laborer combines in himself muscular power, 
acquired skill, inventive genius and managing capacity, 
and works on his own capital, the entire proceeds of his 
labor must go to him, subject only to the claims of the 
government. But even then, it is easy and it is well, 
agreeably to the principles of distribution, to set down one 
portion of the proceeds as compensation for the use ol 
capital, another portion as the reward of simple labor, and 
yet another as a premium for the wise management of the 
business. 

This department naturally resolves itself into four sub- 
divisions, which will be treated in their order. 

1. The Remuneration of Lator. 

2. The Remuneration of Capital. 

3. The Distribution of Profits. 

4 The Revenues of the GovernmenL 



CHAPTER XIII. 

THE REMITNERATION OF LxVBOR. 

Terms used. — The compensation of labor is repro- 

&)nted by several terms wliicli correspond to different 
kinds of labor. The term most common and applicable 
to the greatest number of persons is Wages. It meaiis the 
stipulated reward for services rendered, rated either by the 
time occupied, as when men are paid by the day or month, 
or by the w^ork accomplished, as when men are paid by the 
piece, — so much for each article made. This term is ap- 
plied especially and chiefly to manual labor of all grades, 
including simple labor in which little more than muscular 
strength is required, and skilled labor which involves Intel 
ligence and training. It presupposes the relation oi 
employers and employes, bound by a mutual stipulation 
or contract which may be varied or terminated on short 
notice. 

The term Salary expresses a fixed sum of money to be 
reckoned usually by the year, for services which ordi- 
narily involve some brain-work and responsible trust; 
Thus in a large manufactory, while the mass of laborers 
receive wages, the book-keeper, the cashier, the superin. 
tendent and the general manager, who may be the presi- 
dent of the stock-company, have salaries. The compensa- 
tion of clergymen, teachers and civil ojSicers is commonly 
adjusted in this form. Generally, the term implies an 
engagement of some permanence, and a grade of service 
requiring special qualifioations and previous education. 

In some kinds of business, agents are employed whoso 



REMUIS'EIIATIOK OF LABOR. 155 

labors are compensated by Commissions, that is a certain 
rate per cent of the Yalne inTolved in each transaction 
Thus brokers, or persons engaged in the purchase of stocks, 
real estate, etc., insurance agents, collectors of debts, trav- 
eHng clerks who solicit orders of goods for mercantile or 
aian"ufacturing establishments, are compensated for their 
labor by stipulated commissions. In this case, the em- 
ployer or the party who engages the service, makes him- 
eelf responsible only for what is actually done, and the 
agent's reward will depend very much on the enterprise, 
tact and fidelity with which he prosecutes his work. 

Lawyers, physicians, and certain civil officers are re- 
munerated by Fees. This form of compensation originated 
i3robably, in the gratuity formerly offered for a service 
rendered, by the party benefited. Hence there has always 
been more or less of indefiniteness connected with this 
mode of remuneration. It is adjusted for each particular 
service, at rates determined in part by usage and in part 
by the arbitrary demand of the party rendering the service, 
or by the good-will of the party served. 

From the mere statement of these distinctions, it v> 
evident that the questions respecting toages involve the 
most difficult problems of distribution, and must therefore 
command our first and chief attention. ]Mr. Francis A. 
Walker, after limiting the wages-class to "persons who 
are employed in production witli a view to the profit of 
their employers, and are jiaid at stipulated rates," esti- 
mates that " of English-speaking people, three-fourtha 
probably, two-thirds certainly, subsist on wages." They 
compose the class who without resources and defences of 
their own, stand exposed to the operation of laws which 
are, in their very nature, fixed, and which work with a 
kind of relentless severity. 

Before attempting to state the laws which govern th«j 
rate of wages, we need to notice some important distino- 



156 DISTEIBUnOK. 

tions, the neglect of which often causes error and confu^ 
sion in the discussion of this subject. 

Nominal and E.eal Wages. — The rates of wagea 
are usually stated in terms of money. This money-rate ia 
what is meant by nominal wages. But, as actual remun> 
eration of the hired laborer, wages are measured by the 
necessaries, comforts and luxuries of life which they will 
command. Real wages are so estimated. It is of the 
highest importance to observe this distinction, in compar- 
ing the rates of wages in d liferent countries, or at diiferent 
periods. The money which a skilled mechanic in Eng- 
land receives for a aay's work is much less than that re- 
ceived by one of the same class in the United States. But 
actual investigation shows that the English workmanV 
smaller pay will bring him the larger quota of those thing? 
which minister to the enjoyment of life. In our country, 
the wages of a common day-laborer in 1843, were one dol- 
lar per day ; in 1865, the nominal rate was doubled. Yet 
the low rate of 1843 would secure for him full one-third 
more of articles necessary for his comfort, than the double 
rate of 1865. 

Several causes operate to produce this difference. 

1. The most influential of all is the Fluchiations in th^ 
'purchasing 'power of money, under sudden expansions and 
contractions of the currency. An increased production of 
gold and silver, at times, has added suddenly to the money 
of the world. In former times, sovereigns used to debase 
the coin of their realms, in order, for their own advantage, 
to make out of the same weight of gold and silver, twice aa 
much money. And in modern times, the invention of 
paper substitutes for coin, especially when issued as incon- 
vertible government-notes, has done more than all else to 
produce sudden expansions of that which passes as money. 



NOMINAL AND REAL WAGES. 157 

Any sucli increase of current money soon shows itself in 
a diminished purchasing power, that is in enhanced jiricea 
for all commodities. The worst mischief of such fluctua- 
tions falls upon those whose living depends on wages. 

It may be said that with the advancing price of com^ 
modities, loages also rise. This is true to some extent, but 
ordinarily, wages do not rise in full proportion to the a I- 
Vance of prices generally. The change in wages comes 
lagging slowly after the other changes ; it stops considera- 
bly short of the full expansion in other matters ; and the 
reaction which brings a decline, is apt to affect wages 
sooner than the prices of merchandise. The reason for 
this difference is well stated by Mr. Amasa Walker thus : 

''For nearly all products, there is both an actual and specu- 
lative, or a present and prospective demand ; for labor there is 
only an actual present demand. When business begins to be par- 
ticularly prosperous, there is a general demand for all kinds of 
merchandise, and prices gradually begin to improve. This, at 
once, occasions a speculative demand ; for to buy will be to realize 
an advance ; the larger the purchases, the greater the amount ot 
the profit. Every operation pays. The rise continues until every 
article bought and sold as merchandise goes up to the highea , 
point. But no one speculates in wages. No one can, if he would^ 
buy a hundred thousand dollars worth of labor and hold it for an 
advance, as he can of flour, sugar or tea. On .the other hand, 
when the tide turns, the fall of merchandise is broken by the dis- 
position and ability of the owner to hold his goods and, as far as 
possible prevent loss ; but the laborer cannot do this — he must 
sell his services at once for the most they will bring." 

These views are somewhat qualified by the fact that 
speculation, for the time, stimulates production so as to 
increase the demand and raise the wages for labor. This, 
however; is an unnatural stimulus, which leads inevitably 
to over-production. In the day of highest activity and 
apparent prosperity, laborers fail to get their full share of 
the advantage, and when the reaction comes, there is no 



158 DISTRIBUTION. 

alternative but that many forms of production must be 
curtailed or wholly suspended, and multitudes of laborers 
must be thrown out of employment altogether. Thus, the 
financial revulsion of 1873, which was a necessary conse- 
jfnence of the speculation and over-production incited bj? 
the inflated currency of the ten years previous, brough 
its saddest results on the class who depend on wages, cut 
ting off the means of living with many, and perpetuating 
the distress through a series of years following. 

2. Another cause producing a difference between nomi 
nal and real wages is found in the Forms of Payment, 
While wages are generally reckoned in money, they are 
not always paid in money. Almost everywhere, unmar- 
ried agricultural laborers have their board counted in as a 
part of their wages. In some countries farm hands are paid 
almost entirely in kind, that is in a portion of the pro- 
ducts, in the rent of a cottage, the use of a patch of ground 
for themselves, the privilege of keeping a cow or a pig and 
certain perquisites such as the hauling of peat or coal. 
With some manufacturing establishments, a store is con- 
nected and a cousiderable part of the wages of employes i 
paid by orders for goods, whose price and quality may be 
Buch as materially to reduce the wages when measured by 
necessaries and comforts actually obtained. In our coun- 
try, this *^ truck-system" is much less common now than 
it was fifty years ago. In France, the artisan classes have 
always resented it, and in Germany, the Industrial Code 
of 1860 forbids this form of payment. It is to be hoped 
the day will soon come when it will be everywhere aban-' 
doned. 

3. The greater or less Regularity of employment also 
creates a difference between nominal and real wages. This 
U! affected by the nature of the occupation, as in agricul 



KOMIlfAL AND KEAL WAGES. 159 

tnre, brick-making, house-building, tlie fisheries and the 
like. In a climate like ours, some paits of labor in these 
ca'dings, are precluded at certain seasons an 1 are crowded 
at others. In some Catholic countries, the observance oi 
numerous holidays causes considerable irregularity of em- 
ployment. The concentration of labor in large estabhish- 
ments for production on a large scale, with the methods 
of modern trade, almost inevitably causes alternations of 
periods of great activity with periods of dullness and de- 
pression. In this connection must be noticed also, the 
interruption to regular industry caused by strikes. In 
illustration of these irregularities and of their effect on 
wages, we present the following facts stated by Mr. Bax- 
ter, an English writer. Speaking of the building-trades, 
he says : 

"These trades form a whole and include carpenters, brick- 
layers, masons, plasterers, painters and plumbers, and number in 
England and "Wales about three hundi'ed and eighty-seven thou- 
sand men above twenty years of age. It is only the best men, 
working with the best masters, that are always sure of full time. 
These trades work on the hour-system, introduced at the instance 
of the men themselves, but a system of great precariousness of 
employment. The large masters give regular vrages to their good 
workmen, but the smaller masters, especially at the east end o.' 
London, engage a large proportion of their hands for the job, 
and then at once pay them off. All masters, when work growa 
slack, immediately discharge the inferior hands and the unsteady 
men, — of whom there are but too many among clever workmen, — 
and do not take them on again until work revives. In bad times, 
there are always large numbers out of employment. In prosper^ 
ity, much time is lost by keeping " Saint Monday'''' and by occa- 
sional strikes." 

All this clearly shows that the real remuneration of the 
laborer must be estimated, not by the wages of one day of 
the week or one month of the year, but by that rate, aa 
qualified by tlie regularity or irregularity of his employ- 
meet. In reckoning annual earnings, it is common ta 



160 DISTEIBUTIOK. 

count three hundred working days to the year, For a 
majority of occupations, however, this is probably too high 
an estimate. 

4. Tu determining the diiTerence between nominal and 
real wages, regard must also be had to the Duration of the 
poiver to labor, that is to the number of years during which 
the man can expect to have strength and vigor to earn 
wages. Vital statistics indicate that this period varies 
considerably with men of dilferent nationalities, — in differ- 
ent cUmates, — and in different occupations. To know the 
real compensation of labor, we must estimate the wages of 
a lifetime. Where the conditions of labor involve early 
mortality or disability, as is the case with almost all work 
.n mines, the life's earnings are proportionately reduced. 
The rate of nominal wages is generally somewhat higher 
on account of such special exposure, but seldom is the in- 
crease at all commensurate with the risks involved. 

The extensive use of labor-saving machinery introduced 
witnin the last fifty or sixty years, has no doubt tended to 
depress the nominal wages of labor. But the same cause 
has very greatly multiplied and cheapened the necessaries 
and comforts of life ; so that real wages now reach a 
higher measure than formerly. The laborer of to-day 
enjoys a hundred comforts which either were not known a 
half-century ago, or were then quite beyond the reach of 
persons of his class. lie may well congratulate himself on 
his improved condition. At the same time, however, the 
fact of his having enjoyed these things so freely, makes 
them seem necessities and aggravates the hardship of 
being, in any degree, deprived of them. 

Nominal and Real Cost of Labor. — In presenting 

the previous distinction, wages were considered from the 



KOMIXAL AND EEAL COST OF LABOR. 161 

laborer^ s point of view. The question then was, what are 
the wages at a given rate, worth to him who earns them } 
We need to look at the same thing also from the employer's 
point of view. Now the question is what is the labor per- 
formed worth to him who pays the stipulated wages ? We 
shall see that in this case, as in the other, the rate of 
wages, by itself, is not a certairi exponent of real value. 
Mr. Brassey, drawing his conclusions from the actual expe* 
riences of his father in conducting vast industrial opera- 
tions, especially the building of railways in many lands, 
maintains unhesitatingly " that daily wages are no criterion 
of the actual cost of executing works or of carrying out 
manufacturing operations. On the contrary, experience 
teaches that there is a most remarkable tendency to equality 
in the actual cost of work throughout the world." 

The fact is simjly that labor, as an element of cost ic 
production, must be estimated not by the time occupied, 
nor by the rate of wages paid, but by the efficiency of the 
labor itself. With respect to this element of efficiency, 
men differ very greatly. Mr. Brassey states many facta 
illustrating this difference. We give two or three of them . 

"On one side of a building, a London bricklayer was employed 
at five shillings and sixpence a day, and on the other, two countrj 
jricklayers at three shillings and sixpence a day. It was found 
by measuring the amount of work performed, without the knowl- 
edge of the men employed, that the one London bricklayer laid, 
without undue exertion, more bricks in a day, than his two less 
skillful country laborers." "On the Grand Trunk Railway (of 
Canada), a number of French Canadian laborers wore employed. 
Their wages were three shillings and sixpence a day, wliile the 
Englishmen received from five to six shillings a day, but it waa 
found that the English did the greater amount of work for tne 
money." " By a very careful inquiry, at a large iion establish- 
ment in France, it was ascertained that forty-two men were there 
employed to carry out i,he same amount of work which twenty 
five men were able to do at the Clarence factory on the Tees." 



163 DISTBIBUnOIS". 

There are many other like facts that show clearly that 
the diSerent wages paid in diSerent countries for a day's 
labor, are no trustworthy index of the real cost of laoor. 
Often it is the best economy to employ men at the highest 
wages, because from superior skill or greater energy, they 
will achieve most for the money. The difference is quite 
generally overlooked, when, in discussing the advantages 
of a protective tariii, a comparison is instituted of the rates 
of wages in different countries. It is often wholly disre- 
garded in the demands which laborers endeavor to enforce 
by strikes. It sometimes happens that, even wiiere there 
is a great demand for labor, many persons are unable to 
obtain employment, because the demand is not for certain 
hours of nominal work, but for labor that is intelligent, 
trained, efficient. As Mr. F. A. Walker says, "It must 
be held constantly in mind that the value of the laborer^s 
services to the employer is the net result of two elements^ one 
positive, one negative, namely, Work a7id Waste." The lat- 
ter term includes breakage, the wear and tear of imple- 
ments and machinery, the destruction or impairment of 
materials, and the cost of supervision and oversight. The 
more delicate the machinery and the more costly the ma- 
terials, the greater is the liability to waste by unskilled 
hands. 

TJie Various Causes to which these differences in in- 
dustrial efficiency may be referred are grouped by Mr. 
Walker under six heads. In stating them, we adopt his 
terms and follow his orler with very brief expansion. 

1. Feculiarities of stock and Ireeding, ]\Ien of differ- 
ent races are found to differ greatly in physical structure, 
m height, weight, muscular strength, nervous force and 
spirit. The development theory of modern science, no 
doubt properly, refers this difference to certain physical 
causes, such as local climate, customary food and habits oi 



IIS^DUSTRIAL EFFICIENCY. 163 

life, contmucd througli many generations. Certain social 
and industrial causes are also to be recognized. The 
standard of height in the French army has been reduced 
during the eighty years, since 1793, from five feet four 
inches to five feet one and one-half inches. This is ac- 
counted for by the fact that for more than two generatiousj 
-the strong, healthy, brave men of the nation have been 
drawn off to the wars and used up, leaving the feeblei 
males at home to propagate the stock. The employment 
of women and children of tender age at hard labor and 
under great exposure, in mines and factories, must after a 
generation or two, depreciate the stock. Peculiar charac- 
teristics thus formed become hereditary, and are perpet- 
uated in individuals whose circumstances and habits are 
altogether changed. 

2. Tlie Meagre7iess or liberality of Diet. Food is to the 
human frame -what fuel is to the steam-engine. '^ What 
the employer will get out of the workman will depend 
very much on what he first gets into him." The case 
demands only food, in quality nourishing, and in quantity 
sufficient to keep the man in the best working condition. 
Luxuries and abundance beyond this, mar digestion and 
diminish physical power. This matter is carefully studied 
in the treatment of our working animals ; why should ic 
not be also regarded with respect to our working men ? In 
this connection, the matter of clothing is an important 
consideration ; for clothing and food help each other in 
maintaining the necessary warmth of the body. A sheet 
iron jacket is put around a steam-boiler to prevent the 
waste of heat ; is it any less a matter of economy that a 
woolen jacket be put about the body of the laborer for the 
same purpose ? 

3. Habits voluntary or involuntary respecti?ig cleanliness 
of person and purity of air and vjuter. Whatever depresses 



164 DISTEIBUTION. 

the vitality of a man must diminish his efficiency for labor 
What can more effectually impair the quality of the blood 
and depress the nervous force than to live as millions of 
laborers do, crowded with their families in narrow, filthy, 
unwholesome tenements, where the bright sunlight is ex- 
cluded and the water they drink is contaminated with 
eewage matter, and the air they breathe is charged with 
noxious poisons ? Sad and sickening are the reports of 
parliamentary investigations in England on this subject. 
We congratulate ourselves that, in our country, working- 
men, especially those connected with our large manufao 
jories, are better provided for. Yet the evil referred to ia 
growing upon us, particularly as respects laborers of the low- 
est grades in our great cities. Philanthropy and economy 
alike should prompt the use of all proper means to guard 
against this evil. Employers may do something to secure 
decent homes for tlieir workmen as well as to make wages 
just. But as shiftlessness and intemperance are prime 
causes of the degradation of labor, so the chief remedy 
and safeguard must come from laborers themselves culti- 
vating self-respect and will-power for self-restraint. 

4. The general Intelligence of a laborer goes far to 
determine the measure of his efficiency. A man who has 
^earned to read and write, has thereby improved his ca- 
pacity to learn a trade or any particular form of work. 
Men intelligent enough to go beyond the mere mechanical 
routine which occupies their day, so as to understand the 
object to be attained and the reason for every step of the 
process, need less superintendence than the dull plodders 
who ncTer think for themselves. Intelligence in the 
laborers may also save much waste of materials. This ia 
an important consideration, esj^ecially in those branches oi 
mechanical industry in which the outlay for materials fai 
exceeds the amount paid for wages. Many, through sheei 



INDUSTRIAL EPFICIEIfCT. 163 

.gnorance, are utterly incompetent to use delicate and 
intricate machinery, which properly managed greatly 
enhances the profit of production. Intelligent minds^ 
while basy with such machiner}^ have their invention 
(uickened to devise new improvements. All these consid- 
rations clearly show that intelligent workmen employed at 
high wages diminish instead of increasing the real cost oi 
labor, measured by the results produced. 

5. Technical edtication and industrial enviromnent add 
much to the efliciency of labor. The reference here is in 
part to thorough apprenticeship, but more to the inherited 
instinct and the unconscious tuition acquired by contact 
and familiarity with well organized systems of industry, 
vigorously maintained. *^ In some communities, a child is 
brought into the world half an artisan." In association 
with good workmen and their operations, a boy grows into 
habits of accurate observation and of manual dexterity, 
and learns the best part of his trade before he begins hia 
regular apprenticeship. Then, he falls naturally into his 
place in the organized routine of daily labor, and quickly 
acquires expertness, despatch and endurance. Every well 
organized and administered manufactory is thus a school, 
an educational institution for training all engaged and all 
who come in contact with it, to habits of subordination, 
regularity and co-operation, the prime elements of effi- 
ciency in labor. 

6. Cheerfujiess and Hopefulness in labor, growing out 
of self-respect and social ambition, and the laborer's per- 
gonal interest in the result of his work. For the lack of 
these elements, slave labor is always inefficient and costly 
labor. No xjressure of a master's authority, no driving 
under the lash can bring out such results of labor as come 
from till' springs of cheerfulness and hope in the 



166 DISTRIBUTIOSr. 

breast of the worker who respects himself as a free man, 
and whose personal interest in the results of his toil gives 
wide scope to a noble ambition to make the most of him- 
self. The wages of free laborers may be so low as to reduce 
them almost to the leyel of slaves. But this always involves 
m the long run, a ruinous reduction also of the profits of 
production. It is for the interest of the employer no less 
than for that of the laborer, that wages should be such as 
to promote cheerfulness and inspire hopefulness ; giving 
him who depends on them a chance, by careful thrift and 
determined energy, to better his condition as the years of 
his life run on. 

The Leading Considerations "which determine 
the rate of Wages. — According to our definition, wages 
imply always a contract, a stipulation between two parties 
— a promised reward for promised services. The two par- 
ties come together for their mutual advantage, yet, in 
making the contract, each looks at his separate interest. 
The wages agreed on must have some regard to each of 
these separate interests. ]^J"either will be the absolute and 
all controlling consideration to determine the result. 
Other considerations may have more weight than either or 
both, but each of tliese will have some weight and claim 
some regard. Looking at the laborer's interest, 

1. The first thing to be considered is the Cost of Liv- 
ing— wh^t is necessary for the support of the laborer, 
according to the standard of his class. Obviously, the 
individual laborer must have something to live on which 
will keep him in bodily health and vigor, fit for work. 
But this is not all. Man is short-lived. The species is 
kept in existence by succession. Children must be reared. 
To keep the number of laborers the same in any country 
wages must be suilicient to provide food and clothing for 
man and wife and at least two children, until they are 



KECESSAfiY WAGES. 167 

able to support themselves. Something further must be 
Bdded to provide for the laborer in his old ago, when he ia 
too feeble to work. More than all this is needed, for 
nature has ordained that the human species shall incieaso 
at a rate more rapid than that of two children to each 
married pair. Hence, in the settlement of wages, regard 
must be had to the rearing of such a number of children 
as ordinarily, in the course of nature make up one family. 
This consideration alone would determine what som,e 
writers call Necessary Wages, David Eicardo writing in 
1817, propounded the theory, which was for many years 
quite generally accepted, that " the natural price of labor 
depends on the price of the food, necessaries and conve- 
niences required for the support of the laborer, so that with 
a rise in the price of food and necessaries, the price of 
labor will rise ; with a fall in their price, the natural price 
of labor will fall." There is a measure of truth in this 
view. This is a consideration which must affect wages. 
But this is not, as Eicardo's theory represents, the clomu 
nant factor in settling the contract. It may be uppermost 
in the mind of the laborer, as he comes to the negotiation. 
He will naturally urge his claim for a compensation which 
will not merely keep him and his family alive, but which 
will enable him to multiply comforts and improve their 
condition. The main force of this consideration is how- 
ever, to define a limit below which wages cannot be set, to 
continue long, without producing misery, a fearful mor- 
tality of children, and a sad wjiste of the very nerves and 
sinews of effective industry. Nevertheless, tluit which ia 
fell in all to the laborer, has little place in the thoughts of 
llie employer. Looking now to his interest, 

2. The second thing to he considered is the Value of tlit 
Products — what returns will be given for the capital wliich 
engages labor and for the abilities, time and responsibility 



168 DISTRIBUTIOK. 

involved in managing tlie business. Only the hope ol 
Buch reward draws capital, the fruit of past labor, into union 
with present labor. If that hope is cut off, capital ia 
withdrawn, wages cease and the industry is suspended. A 
person who has wealth embarks a portion of that wealth, 
as capital, in some enterprise of production, not because he 
desires to keep it employed, but because he desires to in- 
crease his store by the profits of production. The employ- 
er's ability and his readiness to pay wages "depend on the 
measure of these profits. With increased profits he can 
afford to pay more wages. With diminished profits, he i3 
prompted to make new stipulations for reduced wages. 
When the business yields no profits, or involves loss, his 
study is how to close the business and extricate his capital 
at the least possible sacrifice. The only exception to this 
course is when the unfavorable result .is due to some 
temporary cause, and regard for his honor as respects en 
gagements already made, and the hope of better times 
prompt him to continue his business even at a loss. It 
stands fixed as a general law, that the employer hires hia 
workmen and adjusts their wages with reference to his 
own profit from the products of the business. 

Ifc cannot be said, however, that this alone, any more 
than that previously stated, is the all-controlling consider- 
ation. It is one of primiC importance in the view of the 
employer as he enters into the contract. Its cliief force is 
to define a limit on the other side, — a limit above which 
wages cannot rise to continue long, without causing capi- 
tal to withdraw and wages to cease altogether on the sus- 
pension of production. The laborer comes to the negctia^ 
tion pressing his demand for such wages as he deems 
necessary for his support. The employer comes offering 
such wtiges as he thinks the profits of the 'business will 
enable him to pay. The one seeks as large and liberal a 
support as he can get, and so sets his mark for wages aa 



THE WAQE-FtJIfD THEORY. 169 

high a«5 possible. The other seeks as large an 1 munificent 
profits as he can secure and so sets his mark for wages 
as low as possible. The actual agreement will strike a 
point between the two, to be definitely determined by con- 
siderations not yet named. These two considerations sim- 
ply determine the minimum limit, below which for the long 
run, wages cannot fall, and the maximum limit above 
which for the long run, wages cannot rise. Tlie minimum 
limit is the rate necessary for the support of the lalorer and 
Ills family. The maximum limit is the rate which will 
leave to the employer, out of the profits, a fair return for 
the use of the capital and for the care and responsibility of 
management. No lines can be drawn absolutely fixing 
these limits for all cases. They will ever varv with cir- 
cumstances. It will always be an open question with the 
laborer, how little he will try to live on, and with the em- 
ployer, with how little profit he will be content. But like 
certain formulas of mathematics, the statements indicate 
-limitations, fixed in the nature of things, within which the 
equation of wages will be found. 

The Wage fund Theory as it is called, demands some 
notice in this connection. This theory is summarily stated 
ny Mr. J. S. Mill, as follows : 

''There Is supposed to be, at any given instant, a sum of 
wealth which is unconditionally devoted to the payment of wages 
of labor. This sum is not regai-ded as unalterable, for it is aug- 
mented by saving and increases with the progress of wealth ; but 
it is reasoned upon as, at any given moment, a predetermined 
amount. More than that amount, it is assumed the wagers- 
receiving class cannot possibly divide among them ; that amoun 
and no less they cannot but obtain. So that the sum to be di 
Tided being fixed, the wages of each depend solely on the divisor, 
the number of participants." 

As embodying the fundamental principle that capital 
is a prime factor in all productive industry, so that labor* 



170 DISTSIBUnOK 

ers must be idle till capital is furnished for them to wori 
upon and to work with, and the rate of wages must depend 
on the ratio between the amount of capital and the num- 
ber of laborers seeking employment, there is an element 
of truth in this theory. But as a solution of the problem 
©f wages, it is unsatisfactory and misleading. For its basil 
13 a purely ideal supposition. As a palpable fact, the sup- 
posed fund has no existence. If there were such a general, 
national fund as the theory defines, it must be an aggre- 
gate made up of smaller funds of the kind possessed by 
the individual employers of the nation. But what employer 
can ever point to a specific portion of his capital which ha 
feels that he must exjjend in wages ? 

That which draws out wealth to be joined, as capital, 
with labor in production, is a lio^Jefiil opportunity for in- 
creasing tvealth hy the profits of production. In starting 
an enterprise, a certain amount of capital must be provid id. 
The bulk of this capital is put into what English people 
call the ^' plant " that is fixtures, buildings, machinery, 
etc. A portion is also used in the purchase of a first stock 
of materials. For wages, it may be that a small portion of 
the original capital will be reserved, bat it is only just 
enough to support the laborers in the outset, till the avails 
of the products come in. More likely what is needed for 
wages will be borrowed from the bank, in anticipation of 
coming sales. After the returns begin to appear, they 
are thenceforward depended on, first for the payment of 
wages, then to keep the plant in repair and to replenish 
materials, and finally to reward the capitalist. According 
to the measure of the profits, the work will be extended, 
new laborers will be called in and higher wages will be 
paid. The manager recognizes no such thing as a wages- 
fund, but he does most carefully consider the profit and 
hss item on his balance-sheet. 

At this present writing in 1877, we have seen for tw* 



CCJSTOMAKY RATE OF WAGES, 17i 

or three years mucli capital idle, locked up in factories 
which are closed, and thousands of laborers without work 
and without wages. In other cases, the business is still 
run on reduced time and reduced wages, with no profit 
At the same time, we have seen the banks overloaded with 
a pbthora of money, whose owners are most anxious to 
find some way of putting it into profitable investment. 
This condition of things is explained by the fact that from 
certain causes, which we will net now attempt to name, 
industry failed to yield its customary and expected returns. 
There were no profits, and hence employers could pay no 
wages or could pay but a part of what they had previously 
paid. They could bear, for a time, to lose the remunera- 
tion of the capital invested in the mills, but to add to thia 
the steadily exhausting payment of wages would be ruin- 
ous. They dare not borrow and the banks dare not loan 
money to be so used. 'Now it makes the case no plainer, — 
does it not rather confuse matters, to say that somehow the 
financial revulsion curtailed the wages-fund? Is it not 
more philosophical and more in accord with common sense 
to say that wages fail or decline because industry fails to 
yield the necessai^y profit? This is the plain matter of 
fact. Ideal funds, ideal divisor and dividends, ideal aver- 
ages cannot clear up the problem. What has been, must 
be, whenever, for whatever reason, values produced fail tc 
Bhow a sufficient surplus above the values consumed. 

3. What has been the Customary rate of Wages is a 
consideration of some force in determining the rate that 
hall be. This means no more than that there is always a 
■jrosumption in favor of existing usage, which on one side 
or the other may be more or less effectually pleaded in the 
negotiation between the parties. This consideration 
alwajs resists a contemplated change, and when necessity 
compels a change to be made, it essentiaPv modifies the 



^72 DISTltlBUTIOIf. 

degree and the time of that change. Thus when. in 1865 
an inflation of the currency in the United States had 
raised prices and increased the cost of living, and had at 
the same time stimulated .production and increased the 
falue of its returns, hoth necessity on the one hand, and 
ability on the other called for an adyance of wages. Bui 
employers clung tenaciously to the customary rates and 
yielded very slowly and reluctantly to the call, and after 
all, stopped short of advancing wages in full proportion to 
the enhanced prices and profits. Ten years later, we fiiul 
a condition of things just the opposite. Both profits and 
the cost of living were greatly reduced, and employers 
were constrained to reduce wages accordingly. But then 
the laborers clung to existing rates and resisted the reduc- 
tion, in many cases with violence. This tendency always 
appears qualifying the effect of other considerations. It 
is like the law of inertia in physics. It resists or impedes 
all changes of wages, and though an incidental, and com- 
paratively unimportant consideration, it needs to be recog- 
nized and regarded. 

4. Competition is leyond all others tlie co7itrolling con- 
sideration in determining wages. We cannot say of this 
that it is absolutely controlling. For the considerations 
previously named must be to some extent respected. But 
we do recognize competition as more influential than any 
or all of these. It cannot nullify, but it does, in a meas- 
ure, overbear them. 

Competition is the endeavor of tvoo or more persons to 
gain the same thing, at the same time. In this matter oi 
wages, it a]")pears in either or both of the parties to the 
contract. Many laborers are seeking wages and good 
wages at the same time. Many employers are seeking 
profits and large profits at the same time. Competition 
Incomes active just in proportion to the comparative num- 



OOMPETITIOIS^. 1 IB 

oers on either side. If the mimbei of laborers is just 
sufficient to do the work desired by the employers, on 
terms satisfactory to both parties, there will be no compe- 
tition on either side ; but that balance is seldom realized, 
and never stable. Whenever it is disturbed, competition 
Beta in. If the number of laborers is large in proportion 
to the employment offered, the competition is active among 
the laborers. Each rather than lose his chance for wages, 
will lower the price demanded for his labor. If the num- 
ber of employers and the amount of capital they command, 
is large in proportion to the number of laborers, the com- 
petition is active among employers. Each rather than lose 
his chance for anticipated profits, will raise the price 
offered for the labor he wants. Thus, as ]\Ir. F. A. 
\Yalker states the case, " Each laborer will sell his labor 
at the highest price which any employer can alford to give, 
since the employers are in competition among themselves 
for labor. Each employer will get his labor at the lowest 
price at which any laborer can afcord to sell it, since the 
laborers are in competition among themselves for employ- 
ment. The loiuest price at which any laborer will sell his 
labor, is thus the highest price 2vhich any employer can 
afford to payJ^ 

If for any reason, the wages in a particular branch of 
industry rise above the ordinary rate, a speedy rush of 
laborers into that employment intensifies competition till 
the wages are brought down. If, on the other hand, a par- 
ticular form of production yields profits above the ordinary 
rate, there comes a rush of employers with their ca])ital 
uito that branch of industry and in their competition witl: 
each other, wages arc raised, products are multiplied and 
cheapened till the profits are brought down to the ordinary 
level. The principle of competition tends to adjust to 
each other the natural increase of population on the one 
side, and the natural increase of capital on the other, so 



174 DISTRIBUTION 

as to keep tlie ratio uniform and hold wages steadily m an 
equilibrium most favcmble to the interests of all. TJh 
tendency is manifest, dioiigh a perfect result is hinaeicd 
by the inherent difficulty of transferring laborers from one 
plfice or occupation to another, as compared with the 
ficility with which capital and commodities are trans* 
forred. 

If competition were universally /ree and fair, rvo doubt 
present inequalities of condition would be removed, and 
the burden and the benefits of human industry would be 
equally distributed. Conflicting interests would be har- 
monized by it, so as certainly to secure the greatest good 
of the greatest number. It would adjust the customary 
rate of wages at that golden mean which would ensure a 
comfortable support to laborers and adequate profits to 
employers. Something like this is the theoretical ideal of 
Political Economy toward which its principles tend. A? 
the science is more fully unfolded and more freely applied 
to all industries, and all classes, competition does become 
oore free and fair, and more efficient, as the grand regu- 
lator of production, distribution and exchange. But to 
study the practical problems of human industry, especially 
tnis problem of wages, on the assumption that this idea' 
is or can be made actual, is as absurd as it Avould be, in 
practical mechanics, to take as actual facts, the mathe- 
matical ideals of points and lines and forces and motions, 
and proceed to plan an engine without regard to the gross- 
ness of matter, or the resistance of the atmosphere, of 
friction and of gravitation. As the world goes, self-inter- 
est pushed to the extreme of over-reach i?if/ selfisliness^ is 
Sontinually interfering with competition to make it 
Beither free nor fair. Thus, in the actual working of 
sompetitiouj falsehood, trickery and fraud are introduced 
in mani'old and subtle forms. In the intense struggle of 
coiiflicting interests also, high-handed measures are adopted 



BTKIKES A]!fD TKADES- UNION'S. 175 

to restrict or rule out competition, because in its nor- 
mal working, it hinders selfish greed from attaining 
its ends. 

Ilence, the Combinations to resist comjjetition, which 
are entered into on either side, demand some notice in thit 
connection. Combinations of laborers with respect to 
wages take two forms, which though often blended, may 
be best presented separately. They are Strikes and 
Trades-iinions. 

A Strilce is a mutual agreement of a number of work- 
men to demand of their employers certain terms, and to 
stop work till tlie demand is granted. The right of a 
laborer to define the terms of the contract with his em 
ployer so as to secure his own interest cannot be questioned. 
That involves also the right to refuse to labor except on 
those terms. Neither can the right of numbers, having 
common interests, to combine in counsel and effort to pre- 
sent and maintain their claim be questioned, so long as 
they do not interfere with the freedom of others. When, 
however, the striking party uses force either to compe. 
others to join the combination or to prevent their working 
except on the terms which they dictate, there is a mon- 
strous violation of a most sacred right, — a right which 
should be ever dearest of all, to the laborer, — the right to 
do what he will with himself, his time, his stre7igth, his 
skill. Yet to be eUective, the strike must suppress all 
competition. That is its chief aim. It must bring all 
competent to perform the labor in question into tlie com- 
bination, or prevent those outside from coming in co fill 
the places vacated by the strikers. Hence strikes almost 
Ificvitably lead to a violent outrage upon the most precio ^s 
Tight of freemen. Turgot, the great financial minister of 
the French King Louis XVI., said, a hundred years ago, 
" God in giving to man wants, has made the riglit to labot 



176 DISTRIBUTlOlf. 

the property of all men, and this property is the first, thi 
most sacred and the most imprescriptible of all." 

Apart from this great wrong, a strike may do some 
good service as a strong and determined assertion of a rea- 
sonable claim. The claim is reasonable only when the 
Siecessities of the lajorers require and the actual profit of 
the industry permits the increase of wages, or whateyer oi 
better terms is insisted on. In such a case, the measure 
may prove successful and yield an advantage sufficient to 
compensate for the temporary serious sacrifice involved. 
If, however, the terms demanded will so reduce or endan- 
ger the profits as to leave no inducement for the em- 
ployer to devote his energies and capital to the business, 
the effect of the strike can be only disastrous to all jiarties. 
It is evident, therefore, that strikes cannot absolutely con- 
trol wages. There is a chance that in occasional instan- 
ces, they may yield a real benefit. But the probabilities 
are, as illustrated by many facts, that they will be attended 
with grievous wrong and in the end, aggravate, rather 
than relieve the evils which prompt them. Mr. Brassey 
&ays, ^^ Strikes against a falling market ahuays faiV 

. Trades-unions are combinations of laborers of particU' 
tar trades, in pe7'7nanent organizations, to promote the geri- 
eral interests of their resjjective fraternities. These organi- 
zations bad their prototype in the " giiihW of the middle 
ages. Til en the condition of society was such that no 
rights were sacred or safe except as they were defended bv 
tiie strong arm of might, and all privileges were held 
under a law of restriction and isolation. Each guild stood 
foi itself against other guilds and against the community 
generally. Trades-unions of to-day appear in a better 
character They aim at a variety of objects for the mutual 
benefit of the members, such as contributions for the reliei 
of the S'ck, disabled and distressed, and measures to pro- 
mote sympathy, social enjoymeilt and some raental culture 



TEA DES-UNIOIfS. 17? 

In this aspect, they render beneficial seryice, and arc wor-* 
thy of praise and encouragement. 

But often, they attempt also, to use their power of as- 
sociation with some accumulated money-power, to regu • 
late the rate of wages against the normal action of free 
competition. They do this in two ways, Ity pro^noting and 
sustaiimig strikes and hy restricting apprenticeslnp. A 
strike under the direction of a trades-union, is likely to be 
better organized than an independent strike, more wide 
sweeping, more persistent, and in its first stages more re- 
strained from violence. But according to actual experience 
thus far, it is liable to insist on unreasonable demands, 
and in the extreme issue, it becomes uncontrollable and 
runs into wild and disastrous excesses. In such move- 
ments too, the union almost necessarily aims to establish 
uniformity of wages, irrespective of the varying abilities 
and efficiency of different 2vorJu?nen, which is an injustice 
to the superior artisans as well as to employers. 

The attempt arbitrarily to limit the number of appren- 
tices to any trade, is directly opposed to free competition 
and aims simply at establishing monopolies. It involves 
therefore, the injustice and mischief which are inherent ir 
the very principle of monopoly. It is ever a forced exac- 
tion on the whole community for the benefit of a few. If 
the measure could be carried out universally, it would 
simply make every trade a monopoly and set the various 
branches of business in antagonism with each other, so as 
geriously to obstruct all industry. IMr. Brassey, speaking 
of this part of the policy of trades-unions says, '' Theii 
influence has too often been essentially illiberal, anti- 
social and calculated to establish among the industrial 
classes of the country, that subdivisiofi of Caste which hag 
been the great curse of India." Hence, we may add, thi* 
policy is in its very nature self-destructive and impractica 
ble. The most that can be attained is a partial and tem 



178 UISTEIBUTIOi^. 

pora 7 advantage, to be more than connterbalaLced in tht 
reaction which is sure to come. 

It is further to be observed that the maintenance oi 
these trades-unions involves a heavy tax on the members 
Tlie funds thus raised and tlie affairs of the union are pu'^ 
into the hands of leaders who gain their official position 
Plainly by reckless declamation against the rapacity of em 
ployers and by loud professions of sympathy with the 
wrongs of the laborers. These leaders are apt to exercise 
their power with despotic authority, and are held to 
jlight responsibility for the disposal of funds. They have 
thus a personal interest in retaining or exercising their 
offices, which may be quite at variance with the real inter- 
ests of the body of workmen. When an issue is fairly 
joined, public interests are apt to be recklessly sacrificed, 
until public opinion which naturally inclines to favor the 
wage-receiving class, is turned against them, and the power 
of the government is called to interpose. Then the move- 
ment breaks down, having effected only loss and damage 
to both parties, — a damage most severely felt by the labor- 
ers, the party least able to bear it. All tliis was clearly 
.llustrated in the disastrous action of the railroad brake- 
men and firemen in 1877. 

If the prominent object of trades- unions were, instead 
of directly resisting competition, to keep co7npetition free 
and fair ; and if, in the furtherance of this object, the as- 
sociation would carefully study the essential conditions of 
the wages-problem, and inform themselves concerning the 
actual state of their respective trades, with the means of 
improvement for the benefit of all, employers as well aa 
employes, they might be made to secure valuable purposes. 
Then, the advantages of association and the power of com- 
bination would conduce to the real and abiding prosperity 
of all productive industry. 



COMBIXATIOXS or EMrLOTERS. 179 

On tliG other side, Combinatw?is of Employers are ofteL 
formed witli a similar aim, that is, to resist the natara) 
working of competition, for a supposed advantage of their 
own, Such combinations sometimes aim to regulate the 
exchange of products- by an agreement of those engaged 
in a particular trade not to sell below a certain price. 
This simply creates a form of monopoly in the genera, 
market of commodities, and belongs to the department of 
excliange. We have now to consider these combinations 
only as they attempt to regulate the rate of luoges by agree- 
ments not to pay above a certain rate. It must be ad 
mitted that every man who possesses wealth has the right 
to do what he will with his own. lie has the right to say 
what portion of it, if any, shall be employed as capital in 
production. And as an employer of labor, he has the 
right to say what wages he is willing to pay for certain 
services. A number of employers have also the right to 
unite for counsel and action with respect to their common 
interests, and the matter of wages may properly be con- 
sidered in such associations, provided they lay no constraint 
upon the freedom of other people to exercise similar 
"ights. The question before us is one, 7}ot of abstract 
<^ight hut of lohat is feasible and loise. Can such combi 
nations arbitrarily determine rates of wages ? Is it wise for 
them to attempt such control ? 

It is obvious that, to be effective, the combination 
must embrace all who are engaged in the particular indus- 
iry. This is not an easy thing to accomplish. Any who 
remain outside the combination may overbid for labor, and 
fo open tlie door for renewed competition. Much more 
lifficult is it, nay, impossible to hold all the capital of a 
country bound by the rules of the combination. If the 
wages agreed on are such as to insure a margin of j^rofits 
above those of business generafly, free capital will rush In 
to engage in the industry, and make its own terms foi 



180 DISTRIBUTIOif. 

labor, just as certainly as air will rush in to fill a vacuum, 
or as water will flow to restore its equilibrium, disturbed 
These considerations preclude the success of such attempta 
to dictate wages, except for temporary emergencies, aa 
when laborers are thrown out of other employments and 
can be easily substituted for those who refuse to work fo? 
Ibe wages oHered, or when for some reason the actual em- 
ployes are unable to change their situation. 

The attempt to control wages by the arbitrary dictum of 
such combinations against the normal working of competi- 
tion is unwise, even if it could be successful, because, more 
than anything else, it produces the impression that capital 
is tyrannizing over labor. This causes suspicion and discon- 
tent, and incites antagonism and combinations on the othei 
side. Thus, the cheerful cooperation of labor and capita 
essential to prosperous industry is effectually prevented. 

The true function of such associations is to secure : 
oetter understanding of the laws of production and of th^ 
actual condition of particular branches of trade and of the 
^uses, manifest and hidden, which vary the proceeds of 
industry. Associations of employers generally embody' 
more intelligence than those of laborers. More of reason- 
able discussion and of broad, fair-minded conclusions may 
therefore be expected of them. 

Our conclusion is then that combinations on either 
side, so far as they attempt to resist or prevent free com- 
petition, cannot, in the long run, materially influence the 
rates of wages. If, however, representatives from both 
sides could often and freely meet for mutual explanations^ 
candid discussions and the communication of information 
eonccj-ning the labor-market and the market for products, 
many evils that spring from vicious, fraudulent and per- 
verted competition might be averted and both wages and 
profits wonld be more permanently settled on the basis of 
even and st^able iustioe to all. 



THE GET^^ERAL LAW OF WAGES. 181 

5. Tlie GolcUn Rule of Christ, " Wliatsocver ye would 
Qiat men should do to you, do ye even so to them,^^ presents 
another consideration of some weight in determining 
wages, which Political Economy as well as Christian 
Ethics may fitly recognize and enforce. This, rule embod 
jes a principle Avhich tends to harmonize the action of self 
interest among men, in all relations, Gennine self-interest 
as distinct from rank selfishness, cnlminates in the adop- 
tion of this rule. There are pleasing indications that it is, 
in increasing measure, regarded in the relations before us. 
In many large establishments like that of Mr. Bright in 
England, and some large factories in our country, it is 
made evident that even corporations can have souls, and 
that employes may perform their labor with heartiness 
and good-will, for the advantage of employers, no less than 
for their own. We cherish the fond hope that this rule 
of wisdom and ti-ue policy is destined steadily to gain a 
wider ascendency, softening animosities, inspiring mutual 
confidence and effecting genial cooperation, so as to bring 
out the full power of productive industry in results, larger 
and more equably distributed than the world has ever yet 
known. 

Arbitration by a legally established Commission or by 
a Board organized pro re nata seems a reasonable and hope- 
ful means of settling issues between employers and their 
employes. 

The general law of wages may be concisely stated 
thus: 

By free Competition, wages are adjusted to the ratio 
ietiveen the amount of Capital seelcing labor and the niim- 
her of Laborers seelcing employment; competition itself 
being modified by some regard to the cost of living, the pro- 
ductiveness of industry, established custom, and the prompt^ 
ings of good-iuill between man and man. 



CHAPTER XIV. 

ONUSES PllODUCINa VARIATIONS IN TlIU 
REMUNERATION OF LABOR. 

Special Circumstances by which Wages are 
affected. — While the general law stands as just stated, 
it is found that the rates of wages differ considerably in 
different employments. These variations spring mainly 
from causes which vary the intensity of competition in cer- 
*«in cases. They deserve however a brief, distinct notice. 

Wages are affected hy tUe ease or difficulty, tlie jJleasant- 
ness or unpleasantness , of the emijloyment. When the em- 
oloyment for instance requires great muscular effort, the 
number of persons w^ho can accomplish it, is comparatively 
email. This diminishes the supply, and of course increases 
the price. When this is the case, as men are not usually 
attracted by the prospect of hard labor, a smaller number 
apply for this kind of employment. This still further di- 
minishes the supply. Hence, the price will rise, as the 
wages must be increased sufficiently to overcome this repug- 
nance. On the contrary, when the labor is easy, the number 
of i)ersons both able and willing to perform it, is increased ; 
tbus, the supply is large, and wages fall in proportion. 

The same effect is produced by the general estimation 
of the pleasantness or unpleasantness of the employment* 
Any k'iud of industry which, from necessity, is uncleanly, 
commands higher wages than one which can be performed 
without interfering with personal neatness. One which 
is considered disgraceful, can be supplied with laborers, 



CAUSES AFFECTING WAGES. 183 

only by paying an unusual price. The business of a pub* 
lie executioner, though not difficult, is disagreeable, and 
generally considered disgraceful ; and hence, in cour tries 
where it is made a distinct profession, it commands high 
Fages. 

Wages are affected hy the Skill required in perforviing 
the operation. This arises from two circumstances : Firsts 
skill can be acquired only by practice and education, 
This is in itself costly, and is an inyestment, for which 
the possessor justly receives a compensation. And Second, 
unusual skill generally supposes some unusual endow 
ment. But in proportion to the rarity of the endowment 
must be the smallness of the supply, and of course, the 
rise of price which must be paid for the product. 

Wages are affected by the Confidence reposed. Whereyer 
E great amount of capital is employed, it must, to a yery 
considerable degree, be placed in the power of some one 
or more agents. Hence, if this power be abused, or used 
unwisely, the whole is liable to be lost. If the manager be 
careless, he may destroy it by negligence ; and if he be dis- 
honest, he may convert it to his own emolument. Now, 
this union of judgment with incorruptible integrity, is ab- 
solutely necessary in many of the operations of production. 
But such a union is rarely to be found. Hence, while the 
demand is imperative, the supply is small. On this 
account, though the wages of such persons are high, it ia 
generally found more economical to employ them at any 
price, than to intrust important affairs to the incompetent 
and the vicious. This is one of the rewards which, in the 
course of human events, God bestows upon wisdom and 
virtue. 

Wages are affected by certaiiity or uncertainty, con- 
stancy or inconstancy of employment. Division of labor 
requires that a man devote himself exclusively to a single 
employment, and therefore that his whole emoiuaient b« 



184 OlSTiUBUTIOIf. 

derived from that employment. Hence, when the oppor. 

trinities of employment are rare, the wages for each par« 
ticular operation must be greater, since we mnst pay. noi 
only for the time actually employed, but also for that time 
which is lost to the laborer, while waiting for employment. 
We pay more money for riding a mile m a nackney-coaci} 
than for riding the same distance in a stage-coach, because 
the hackney-coachman may stand half a day in waiting, 
before he finds another customer. Thus also, when a trade 
ean be exercised for only a part of the year, as in the case 
of a bricklayer, you pay to the laborer higher wages, be- 
cause he must receive enough to compensate him for the 
time in which he is obliged to be idle. The crews of whal- 
ing vessels are paid partly in shares of the oil taken. Their 
pay for a successful voyage must therefore exceed ordinary 
seamen's wages to balance the occasional loss when the shi{ 
comes home " clean" or without any oiL 

Another circumstance v)Mch affects the price of wages 
is the certainty or uncertainty of success. In tlie ordinary 
avocations of life, if a man acquire the requisite skill, he 
will almost invariably find emxployment. In the profes- 
sions it IS not so. Those who have prepared themselves at 
great expense for the practice of a profession, unable to 
find employment, sometimes relinquish it for another pur- 
suit. When such a risk exists, the wages of labor should 
be greater, for the laborer is entitled to a remuneration for 
the risk of this loss of time and of capital. 

These are presented by Adam Smith, as the principal 
circumstances on which, irrespectively of the influence of 
capital, the price of labor depends. It will be at on^e 
seen that they are susceptible of very great variety of modi- 
fication and combination, and that frequently, several ol 
them mnst be taken into the account, in order to explain 
the reason of the high or low price of any particular form 
of labor. 



SALARIES, COMMISSION'! A.KD FEES. 185 

The Remuneration of labor "by Salaries, Com* 
missions and Fees, while goYerned to some extent by 
the principles of wages, inyolves also some peculiarities 
which must be mentioned. Generally the labor which ia 
thus compensated is of a kind that requires both superior 
natural gifts and special and expensive education. It is 
alao true of it that, on the one side, personal character and 
reputation, and on the other, the respectability, dignity 
and permanence of the service are estimated as of much 
consequence. These considerations more or less rule out 
ordinary competition, and put the mutual contract, in 
each case, on special grounds. 

The whole number included in the classes whose labor u 
thus compensated, is small compared with the great body 
of those who receive wages. Yet to the few so favored, a 
large share of the proceeds of industry is actually dis- 
tributed. At first view, this looks like a grievous injus- 
tice. But it must be remembered that all private interests 
are promoted when public affairs are guided by men of 
alility and integrity^ and that a wise and vigorous executive 
administration is all essential to make any business profit- 
able. Wages must come ultimately out of the proceeds 
of the labor done, and tlie amount of these proceeds 
depends much on active invention and efficient manage- 
ment. Hence it is for t]ie advantage of every ordinary 
laborer that the places of special trust above him be filled 
by men of capacity well trained. Such men are compara- 
tively few. They are wanted everywhere, and therefore 
they can, to a great extent, make their own terms of service. 
At the same time, it is good economy, as we have seer ir. 
a previous chapter, to pay the price necessary to secuia 
such service. 

In mechanical mdustry, the qualifications which set 
one and another above the wage-receiving class, are of* 
ten brought out m ^elf-made men so called — men who 



186 DISTRIBUTIOiir. 

begin in the lowest rank of laborers, and reveal their faro 
endowments under a process of self-developmeni, a-s oppor- 
tunity is offered. Thus George Stephenson began his iu- 
dustiial career as an engine-boy at the lowest wageSo 
Slowly and steadily, as his natural aptness found oppor- 
tunity to exercise itself, he rose in grade as a workman, 
until at the age of thirty, he was made an engine- wright 
at Killingworth colliery, at a salary of one hundred pounds 
a year, when he declared that his fortune wjis made. And 
60 it was, but in another sense than he dreamed. For 
that position brought him into connection with the 
first efforts made to construct a locomotive-engine, and 
soon his latent genius flashed out in those splendid 
achievements which gained for him the title of " tlie father 
df railways.^' For the services of his later years, he re- 
ceived munificent remuneration. But that seems of little 
account compared with the benefit conferred on all depart 
ments of industry and on the civilized world by the fruits 
of his inventive genius and trained judgment. One such 
eminent example quickens and encourages the activities of 
thousands who raise themselves from the ranks to various 
positions of responsibility, for the advantage of all, no less 
than for their own emolument. 

In other cases, long years of careful study with the lest 
facilities for education^ give to the man a special prepara- 
tion for the special service of his life. So it was with 
Ilobert Stephenson, the son of George. His father, well 
Appreciating the value of advantages he had never enjoyed, 
ppared no expense to add to the son's inherited genius for 
mechanics, the culture and discipline of an excellent edu- 
cation. Enabled thus to start in a position where he com- 
manded a high salary, he pressed his way rapidly on to the 
highest eminence, as a constructor of some of the most 
stupendous iron bridges in the world, to a seat in the Brit- 
ish parliament also, and to places. of honor in scientific 



SALARIES, COMMISSION'S AKD FEES. IS*^ 

associations. He distanced all competitors und was paid a 
nnli reward for his labors, but these labors enriched the 
world in a far higher degree. 

In the learned professions, especially those of law and 
Dicdicine, a man of marked aiility^ trained hy tliorough 
ulucation^ enriched hy varied experience, and having at 
command the treasures of learning, receives for his services 
extraordinary remuneration. When personal liberty and 
security, or great amounts of property are at stake, all men 
reason that it is sound economy to employ the best legal 
talent, at any price. Such men as Webster, Choate and 
Evarts have retaining fees thrust upon them, more than 
they desire, and for their own relief are almost forced to 
sift out the business offered, by high charges. So too, 
when health and life are endangered by disease, all are 
moved to seek the best medical counsel. Such physicians 
as Nelaton, Mott and Parker would be overrun with calls 
if they did not set their fees so high as to rule out many. 
In these cases, acquired reputation comes in always to en 
hance the remuneration asked and freely given. That 
reputation has been gained at the cost of years of careful, 
faithful, successful practice, and has a corresponding value. 
It may be that, for a much smaller compensation, the 
young, talented, well-read lawyer would manage a case as 
well or better than the old practitioner of note ; but you 
have no assurance of this, while the other's reputation 
does give a certain promise of effective service. 

Most marked of all is this difference of remuneration. 
hi the departme7its of Fine Art ; for it is here that genias 
bi'ings forth its most brilliant productions, which seem in 
Eome cases, almost supernatural. A few lines from the 
pen of a Bryant or a Longfellow, a few strains from a 
Jenny Lind or a Kellogg, a painting done by a Church or 
a Bierstadt, a statue wrought by the chisel of a Thorwald- 
sen or a Powers, command prices that seem to common 



188 DISTKIBUTIOIT. 

folk absurdly extravagant. But these products bear each; 
some charms, the strokes of genius, which only the gifted 
few can render, — which are inimitable. Those endowed 
with the capacity for such work are set above the reach of 
competition, in the enjoyment of an unrestricted monopoly. 

Authors of iooJcs are generally compensated by a com- 
mission or percentage of the price of each book sold. 
Often, the actual remuneration received has but little 
respect to either the genius, the learning or the labor of 
the author. The popular taste or wa7it, and the manner 
in which the production meets a present condition of the 
public mind, are often of more account than all other 
considerations. Thus the richest returns are commonly 
won by publications which are ephemeral and trifling. In 
many cases such success seems a matter of mere chance, 
and one successful hit gives no certain assurance of a sec- 
ond like result. 

To account for the high scale of remuneration awarded 
to the kind of service we have been considering, it is often 
said that the expense of time and money involved in oMaiU' 
ing the requisite education, 7nust he compensated by adding 
to common wages enough at least, to pay ordinary interest 
on the original outlay, — also that success in these profes- 
sions is imcertain, and the remuneration must therefore 
cover the greater risk, so far at least, as to balance the 
reward of eminent success, against the loss of many by 
utter failures. These considerations do indeed justify the 
extraordinary compensation on grounds of equity. But 
in the actual contract between parties, they are seldom, if 
over regarded. The estimated importance of the service 
or the special desirableness of the product on the one side, 
and the diminished force or entire absence of competition 
on the other, prevail to settle the compact. 

Custom or sojne general agreement, formal or informal, 
fi ces rates of remuneration for various grades of service 



PKOFESSIONAL FEES. 189 

below those of singular eminence. Thus for book-teepers, 
cashiers, foremen, superintendents of departments, travel- 
ing agents, etc., there is recognized an ordinary rate of 
salaries or commissions, with room for some variation out 
of legard to comparative ability and trustworthiness. In 
the legal and medical professions, the fees are fixed by a 
general agreement or understanding, at a scale which is sus- 
tained by the ^'esprit de corps.^^ Where public in teresta 
are involved, legislation is sometimes called to define the 
fees that may be collected by legah process. Personal con- 
siderations also have some weight. A man's relationship 
to the leading manager of a business, sometimes secures 
for him special remuneration. Another's long continued, 
faithful service is justly regarded as having earned for him 
a right to his position and compensation, against the com- 
petition of new and untried men. 

In connection with great stock-corporations, an abuse 
sometimes appears, when the salaried managers, having 
contrived to control a large majority of the stock, ajipoint 
themselves and fix their compensation at their own will. 
This must be set down as a purely arhitrary exercise of 
power, unrestrained by right or reason. Very often, it 
mvolves direct fraud on other stockliolders, and leads to 
ruinous mismanagement. Sound economy and moral in- 
tegrity join to reprobate such action. 

The honor, dignity and 'permanence of certain positions 
demanding a high order of talent, are considerations which 
often make men willing to accept a less remuneration than 
their services elsewhere might command. Thus a lawyer 
of eminence whose annual income from practice at the 
tar would be twenty-five tliousand dollars, may accept a 
place for life on the bench of the United States Supremo 
Court at a salary of only ten thousand dollars. These 
considerations are of much account in the remuneration 
ci* clergymen and teachers. Men in those professions are 



190 DlSTEIBUnOK. 

confessedly underpaid, when compared with men of eqral 
ability and attainments in other occupations. But then 
offices secure to them social standing and respectability, 
and their duties are congenial to cultivated minds. But 
!iboYe all these, especially with clergymen true to their 
high calling, there is a spirit of devotion to the luork :f 
Christian iejieficence for the well-being of mankind, which 
finds a satisfaction and joy in the service itself ; and thug 
goes far to balance in their estimation, the meagreness of 
their pecuniary reward. 

The Remuneration for Women's Labor in most 
employments, is less than that of men for similar services. 
The fact of this difference is apparent on every hand, and 
the exceptions are few. Is it right or reasonable that it 
should be so ? The answer to this question can be reached 
only as the reasons which account for the fact are fairly 
weighed. We attempt therefore a concise presentation of 
these reasons. 

a. It is a prevalent opinion that for miscellaneous labor, 
wome7i are hy physical and mental constitution inferior to 
nie7i in the qualities essential to highest efficiency. This 
may be a mistaken ojnnion, based upon prejudice and 
confirmed by long usage. Yet so long as it prevails, it 
will determine practice. We step into a cotton factory, 
and in the spinning-room we see men emplo3'ed 
almost entirely, because women have not the strength 
needed to handle the jennies. In the weaving-room we 
find two or three men working with a hundred women. 
The work is light for all. The women attend the looms aa 
well or better than the men, but it would not be safe to 
.eave the room wholly to their charge, because there come 
exigencies when some qualities are needed which the woman 
has not and tlie man has. This is especially true with 
respect to the oyersight of numbers. For general superin- 



WOMEN'S WAGES. 191 

tendence, Bome masculine qualities are supjosed to be 
38sential. Just so it is in a large public schocl. For the 
groater part of the details of instruction, female teachers do 
as well or better than those of the other sex, but it is the 
geneial belief that to work well, the school must have a 
mar at its head. Mothers themselyes are distrustful of 
any large school which has not a man near enough for 
timely interposition to meet emergencies. To cliange this 
general opinion will require something more than an occa- 
Bional instance of a woman possessing what must still be 
termed masculine force and executive aMlity. 

b. In the order of nature and in the constitution of society^ 
the sphere of activity for most women seems ordained to be 
in the Ho^ne, each the solace and help of a husband, by 
whom she is supported and protected, and the nourisher 
and mentor of the children. This is prescribed by nature 
as the first, simplest and most universal application of di- 
vision of labor. The numbers of the two sexes are almost 
precisely equal the world over. As a rule, it is not good 
for man or woman to be alone. Where marriage is dis- 
couraged, there is something radically defective in the 
structure or vicious in the habits of society. All this 
bears on the question before us, since it tends to rule out 
women from many common occupations of productive in- 
dustry, and to create the impression that it is unwomanly 
to enter them. This impression may run to the extreme 
of a false delicacy, and so unduly limit the occupations in 
which women who are thrown upon their own sup])ort are 
willing to engage. But nevertheless, there is, in the very 
nature of things, some check on their freedom, from this 
cause. 

c, Tlie wages of men are adjusted to the presumption 
that each has or tvill have a family to provide for, and those 
of women to an anticipation that each will in due time, by 
marriage, be relieved of her own support. A very large 



193 DISTKIBUnOir. 

proportion of the women who to-day, depend on theii 
own labor^ are young persons who are passing, one afiei 
another, into new relations, where they are to be cared fol 
by men's earnings. We recognize the hardship which thia 
order of things brings on some women who, in the vicissi- 
litdes of life, are compelled by their own labor to support 
not only themselves but their children, and it may be sick 
or intemperate and thriftless husbands. But the number 
of these is comparatively small. The laws of our science, 
like the laws of material nature, are adjusted, on general 
principles, to general conditions. Some incidental, occa- 
jional distress is produced by their iiijlexihility, and yet 
that very feature of the laws may be necessary to secure 
the greatest good of the greatest number. 

d. Tlie actual organization of productive industry, in 
all departments which give place to both sexes, is established 
on this basis of less compensation for ivomen's work. In 
most cases, the greater cheapness of female labor is the 
chief reason for employing it. The cost of production is 
diminished thereby. The prices of all commodities into 
■rhich this kind of labor enters are determined accord- 
ingly. The universal competitions of trade with their 
manifold complications are threaded through and through 
with this element of women'' s cheap labor. The whole 
body of consumers are accustomed to enjoy a benefit from 
it. Hence the principle cannot be easily eliminated. If 
the rule is a false one, it cannot be suddenly changed 
without deranging the entire systems of production and 
exchange. If the prices of men's labor be reduced to the 
level of women's wages, widespread and aggravated distress 
among all the laboring classes must follow. If the change 
be on the other side, the prices of goods included among 
the necessaries of life, must be raised proportionally, pro- 
ducing general distress in another way. All this indicates 
that the established order of things presents such obstruo- 



women's wages. 193 

tions, that any change must be gradual, and that there 
are great general interests to be regarded in every step of 
the movement. 

e. Titer e are feminine instincts wliicli prompt women to 
draw hack from many occupations hecause tliey are coarse^ 
or ifivolve too rough jostling ivith the world. These in* 
stincts need carefully to be preserved, for the charm of 
womanhood is gone when they are crushed out. The pre- 
vailing tendency is to make them excessive so that they 
grow into the sentiments of false delicacy before alluded 
to. Ilence few occupations are open to women, and these 
are so crowded that competition is intense and low wages 
are inevitable. It is no more in the power of employers to 
resist this pressure than it would be in the power of a man 
with his bare arm to stem the Mississippi's current. All 
the considerations before named, concentrate here, and 
here, whatever means are employed to relieve the evil or 
the wrong, must find their application. False ideas of 
respectability keep thousands of women in lone garrets, 
plying their needles for a reward which barely saves them 
from starvation, while there is a steady demand for em- 
ployment in domestic service, where, well fed, in comforta- 
ble homes, they might earn wages which would enablf 
them steadily to lay up a little surplus. 

/. This sharp competition is greatly intensified ly the 
fact that many women who seek employme^it are partly or 
wholly supported ly other resources than their own labor. 
Some, under the pressure of necessity, simply to escape 
the ennui of idleness, or to make their lives useful, and 
very many, aiming only to secure some addition to a par- 
tial income from other sources, seek a share in the limited 
occupations open to females. These are willing, because 
they can afford to work for less compensation than is 
needed by those who have nothing but their labor to de- 
pend on. And often the fact of their better circumstances^ 



194 DISTEIBUnOK. 

their better appearance and it may be their superior intol* 
ligence secures for them the preference. Of necessity 
therefore, excessive competition crowds the other clasi 
Qiore closely to the wall. Certainly it is desirable i© 
encourage in young women a spirit of independence, and 
an acquaintance with and a love for useful occupation. 
Yet as things are, the services of this class come into com 
petition with those of the more needy ones, and cause inci- 
dental hardship. 

Notwithstanding all that has been said, wliere a woman 
ty superior energy or genius, makes eminent acliievements, 
\er services are appreciated in full measure accordiiig to 
the standard of men^s ivorlc of the same hind. This is true 
especially of women's work in fine art. The female stars 
in music and the drama, such as Kellogg and Siddons — iir 
painting and sculpture, such as RosaBonheur and Harriet 
Hosmer — in poetry and light literature, such as ^Irs. 
Browning and Mrs. Stow^e, have no reason to complain 
of the remuneration awarded by an admiring public to 
their productions. So too, occasionally we see a woman 
managing extensive business with great executive ability. 
In such a case, the reward is no whit short of that won by 
iike energy on the part of the other sex. These exceptions 
nowever, rather prove than controvert the rule. And with 
the sole exception of vocal music, we fail to find in any 
department of art or business, women, reaching eminences 
so high that there are not men still above them. 

From all these considerations, we reach the following 
conclusions in answer to the question with whicn oui dis 
cussion opened. 

1. hi the nature of thing Sy there is some good reason 
why the remuneration of uwinen should generally fall heloit 
that of men for similar services. Absolute equality betweeu 
the sexes in this respect, is not likely ever to be attained 



WOMElj'S WAGES. 195 

They who contend for that extreme result, are fighting 
against nature's laws and assailing the only safe fouuijh 
tions of civilized society. 

2. This inequality, as a present matter of fact, is much 
greater than is either right or reasonahle or nccessar^jt 
The distress that comes from it, cries out therefore, in the 
name of justice and of philanthropy for relief. Efforts foi 
relief put forth in the right direction, will not be unavail- 
ing. They may be prosecuted with good hope of success, 
and deserve encouragement and support on all hands. 

3. The chief aim of these efforts must le to break th6 
tyranny of fashion and j^reju dice and mawkish sentimen- 
talism, and to open for women, free access to cdl fit occupa- 
tions. Thus the sphere of competition will be widened 
and its intensity relieved. Under that tyranny, the se- 
verest ban is that imposed by women themselves on one 
another. A change of opinion in female circles, will be a 
change of public opinion. No satisfactory reason can be 
given why with women and with men alike, honest work 
well done should not be always respected and honored. No 
great danger can come from giving the widest range of ex- 
periment for women to try their powers. When the bar- 
riers set up by the false whims of artificial society are 
removed, the native instinct of the sex may safely be 
t]'usted to choose lit and congenial occuj^ationa. Then 
the average rewards of labor, even at women's rates, will 
he raised at least, to the standard of general comfort. 

4. In the quiet sphere of dornestic life, ivoman rendcis 
io society her noUest, most hlessed service. The real worth 
of that service cannot be estimated in terms of current 
money. Its legitimate reward comes not in separate 
wages but in hei rightful partnerships as a necessary 
helper, in a)l that man, the husband, the father, the 
brother, quickened, stimulated, sustained by her genial 
influence in the home, can gather on the world's opec 



96 DISTEIBUTIOIT. 

fields of struggle. "When necessity carries lier out to act 
for herself in those open fields, her true mission will still 
remain that of a Helper, not a Principal. The outlook of 
to-day is full of hope for the success of a Co7iservativ6 
Reform, which shall moye on, safely balanced by a due 
regard always to that highest honor, to those most sacred 
rights of woman which centre in the true unit of Mocietj 
tiie Home* 



CHAPTER XV 

THE EEMUNERATION OF CAPITAL, 

Capital, as we have seen, is a factor, all-esscntial in 
^Ae production of wealth. The most important forma 
which it takes in the process are two, viz., huUdings, tools 
and macliinery to work in and to work with, and materials 
to work upon. Labor and skill are unavailable till these 
are provided. In the process of production, capital in 
these forms is consumed. The materials are immediately 
destroyed. Buildings and instruments slowly but surely 
wear away. Hence, the first appropriations from the pro- 
ceeds of industry must be always to make good this loss,— 
to make necessary repairs, to buy new materials and thus 
to replace the capital consumed. Unless the business is 
failure and must cease, this provision must first be made. 
The compensation of labor, the reward of capital and thp 
profits must be reckoned after that is done. We here 
simply recognize this replacing of capital as a necessity. 
It forms no part of the remuneration of capital which we 
are now to consider. 

The Principle on which the claim of Capital 
to Remuneration rests, is essentially tlie same as thai 
which sustains the compensation of laior. By its defin'' 
tiou, capital is the fruit of past labor preserved by sell 
denial to be employed in further production. One's right 
of property in that which he has earned and saved is inde^ 
feasible, it is precisely the same as his right to his own labor, 
for his own labor may have produced this capital, and it is 



198 DISTRIBUTION". 

but simple justice that if the owner allows another to use his 
property instead of using it himself, he should be compen- 
sated. No man expects to put forth his powers in present 
labor without some reward. Why then, should one be ex- 
pected to gire the use of the fruits of his past labor and so] f ■ 
denial without reward ? The hope of such reward is the 
special inducement for saving. Suppose James Brown to 
haye health and strength and skill as a blacksmith, but 
no shop, no tools, no iron. John Smith has, by previous 
labor and thrift, become the independent owner of a shop 
and its appurtenances, but is broken in health and unable 
to work. Each is evidently helpless without that which 
the other can furnish. Both will derive advantage from 
the union of the two properties,— the personal qualities on 
the one hand, and the accumulated means on tlie other, — 
in other words, the labor and the capital. This may be 
done in either of two ways. Smith may hire Brown to 
work in the shop, and with his tools, and pay him stipu 
lated wages, reserving from the proceeds of his labor, 
something for himself. Nobody can question the rightful 
ness of that course. Or, Brown may hire Smith's shop 
and tools for a stipulated rent, and after paying that, have 
for himself the surplus of all he can earn by his work. 
On what ground can the rightfulness of this course any 
more be questioned ? The latter method establishes the 
relation of horroiuer and leiider, as the former does that of 
employer and employe. It grows out of a common neces- 
sity. It yields a mutual advantage. A division of the 
joint result may give each the living he needs. The one 
lives by his present labor, the other lives by his past labor, 
that is, on his capital. Is not each an honest way of living ? 
Would it not be a grievous wrong for either to demaud 
the benefit of the other's possession without paying for it ? 
This simple case illustrates the whole matter in all its 
varied and complicated aspects. The principle seems too 



REKT. 19S 

plain to need even so much of exposition. But the Coiri' 
mtcnist philosophy, so called, which denies the rights of 
capital, is gaining some acceptance even in onr enlightened 
conn try, and its sophistry is best exposed by the clear 
statement of elementary principles. Everywhere, labo] 
and capital enter into a partnership. lie who provides 
the capital justly claims to share with the laborer in the 
results of their union ; and the laborer can well afford to 
pay for the advantage he gains. 

It matters not in what form the capital is furnished , 
the principle is the same. The laborer may, as in the case 
jupposed, use the shop, tools, etc., of another for which 
he pays Rent. He may make a formal loan, borrowing 
money with which to purchase these things and paying 
Interest, The capital may be contributed by a hundred 
different persons, uniting in a stock-company, which 
through its agents employs a hundred other persons as 
laborers. It is in this last case, just as really a partner- 
ship, as though each laborer made a bargain with some 
one capitalist, but here the compensation for the capital 
comes in the form of Dividends. The remuneration of 
capital thus appears in these three forms. Rent, Interest, 
Dividends. We have said that the fundamental principle 
.s the same in all, yet each form has some peculiar phases 
which require a distinct presentation. 

Rent, is the compensation yaid for the use of capfital in 
the form of land and its appendages, commoyily called Real* 
estate. Kent implies ovmership of land. The grounds on 
whicli this ownership rests have been presented in a pre- 
vious chapter. Here it is enough distinctly to recognize 
what we have seen to be the underlying truth that the 
wealth which God has hidden in the vegetable and mineral 
resources of the earth cannot be developed without some 
exclusive possession and control of the land itself. So 



^00 disteibutio:n'. 

too, the advantages of a particular location, as a place of 
residence or of trade, can be appropriated only in connection 
with a title of possession to that piece of land. When ap- 
propriated, land must he reckoned as capital, partaking of 
the nature both of material to which labor may be applied, 
and also of an instrumefit of labor. Unless excluded by 
special provision, the title to the land carries with it all 
improvements and permanent structures put upon it, the 
term real-estate including all. The use of capital in this 
form, as well as its ownership, may be transferred, and rent 
is simply the compensation paid for such use. 

Several kinds of rent are indicated by different names ; 
the distinctions having originated mainly in the peculiar 
features of the feudal-system and the laws of primogeni' 
iTire and entail to which that system gave rise. Some a 
these may be mentioned in passing. A Rent-cliargt 
means a fixed sum paid annually as a commutation for 
military services or other obligations due from the occu- 
pant of land to its feudal proprietor. Quit-rent is a defi- 
nite reserve, specified in grants of land, by the annual 
payment of which the tenant is quieted or quit from all 
other services to a feudal lord. Metayer-rent is an equal 
division of the actual products between the cultivator anc' 
the owner of the land. Rach-reyit is rent raised to the 
utmost by forced competition. Cottier-rents is a term ap- 
plied chiefly to the usage in Ireland, where sub-tenanta 
rent each a cottage and an acre or two of land from the 
email farmers, the amount of the rent being ordinarily 
paid in labor at a money valuation. Ground-rent, a mod- 
ern term applied mostly to city lots, is compensation paid 
for the occupancy of the ground alone, the lease usually 
providing for an equitable valuation of the structures 
erected on it, with a view to their separate disposal, on the 
termination of the contract. 

In Great l^r^'^oin, the influence of the old feudal system 



EICABDO'S THEOEY. 201 

is still felt in the monopoly of the lands of the kingdom 
by a few families of the nobility and rich gentry, and in 
many restrictions on the transfer of titles. There conse* 
quently, the problems of rent are many and complicated, 
and English writers on political economy give large place 
to this topic. We need not follow their extended and 
elaborate discussions, since they are ill suited to the condi- 
tion of things in our country. 

The famous theory of Ricardo, however, deserves a 
brief notice. His work on political economy is devoted 
chiefly to this subject, and the theory he propounds has met 
tvith general acceptance. Its leading idea is that rent ad- 
vances with the progress of society from the first settling 
of a country, when, on account of the abundance of fertile 
tand, there will be no rent, up to the time when the neces- 
sities of the growing population compel the bringing intc 
cultivation, at the expense of greatly increased labor, the 
poorest of the land. Tlie rent therefore, ivMcli any piece 
of land will yield is just the difference leticeen the value 
of its products and the value of the 2^roducts of the poorest 
laiid in cultivation. The increase of population causes an 
jncrease of rent, and with the advancing rent, the cost of 
food must steadily advance. So by inference, this theory 
was made to sustain the Malthusian theory of population, 
which presents general starvation and wretchedness as the 
certain result in a not distant future, unless some restrio 
tions are laid on the natural increase of population. 

The elementary principle of this theory, that the rent 
of land for agricultural purposes, must depend chiefly on 
its productiveness is true. But the representation of the 
manner in which lands of different grades are brought 
under cultivation is ideal rather than real. The deduction 
from the theoiy can stand only on the assumption that 
the food of a country must be provided entirely from its 
own soil, limited 4. extent. The repeal of the corn -la wa 



203 DisTBiBunoir. 

and tlie adoption of tlie principle of free- trade have shown 
that even Enghmd has little occasion to apprehend tha 
gad consequences of the so-called Eicardo-Malthusian sys- 
tem. AVhen all artificial restrictions are removed, the 
natural equilibrium of supply and demand will provide 
food for a people, irrespective of the more or less that may 
be raised within their own territory. Then too, the same 
law will determine the value of the products of the land, 
and rents will be adjusted accordingly. 

In our country, by the constitutions of most of the 
states, lands are declared to be allodial and feudal tenures 
are prohibited. The property-right to all lands rests 
upon a title in fee- simple, unencumbered by entails and 
mortmain holdings. This makes the ownership absolute 
and its transfer easy and direct, free from burdensome re- 
strictions. At the same time powerful influences oppose 
the aggregation of great landed estates, and favor the 
acquisition of such property, in comparatively small tracts 
by the industrious and thrifty of all classes. Here there- 
fore, the principles of rent are very simple. For agricul- 
tural purposes, the rent of land is determined mainly by 
three considerations. 

1. Froductiveoiess. Land is the instrument by which 
the farmer produces the various vegetable and animal sub- 
stances which he oifers in exchange. 

Like any other valuable instrument, it of course, com- 
mands a price according to its productiveness. lie who 
hired a loom, would pay more for a loom with which he 
could weave twenty yards a day, than for one with which 
ne could weave but ten yards a day. The case is the same 
with land. But the productiveness of land depends on 
two circumstances, viz., its Fertility and its Situation 
with respect to a market. 

a. Fertility, We all know that the productiveness oi 



COXSIDERATIOl!?-S AFFEGTII^a HEWI. 203 

diSeit^nt soils is very di verse. Some soils will produce 
thirty, or forty, or fifty bushels of wheat to the acre, while 
others will produce, at the cost of more labor, not more 
than ten or fifteen bushels to the acre. Some soils will 
prod ace the most valuable vegetables ; and others, only 
the most common, and comparatively worthless. Some 
soils will produce no wheat whatever ; and otheis will, 
without manuring, produce a luxuriant crop every year. 
Some, wholly unfit for tillage, can be used only for grazing ; 
and even when thus employed, yield to their stinted flocks 
but a meagre subsistence. Hence, we see a reason for a 
great diversity in the j)rice of land. And we see at once, 
that a farmer might more profitably pay a rent for one 
farm, than occupy another farm for nothing. 

d. Sit'icatio7i. The products of the farmer are aL 
Dulky, and of course, acquire a very considerable addition 
to their cost by transportation. Hence, if A raise wheat 
within a mile of a market town, and sell it for one dollar 
a bushel, and B live one hundred miles off, and bring his 
wheat to the same market, he must sell it at the Scvme 
price. The merchant who buys wheat can give no more 
than the market price for wheat, whether it has been 
raised near or far off. It is no more valuable to him loi 
having been brought one hundred miles. If now, the price 
of bringing a bushel of wheat one hundred miles be fifty 
cents, B actually receives but fifty cents a bushel for his 
wheat, while A receives a dollar. If the farms of both 
were of equal fertility, that is, if both produced twenty 
bushels to the acre, the farm of B, would be only half aa 
productive as that of A ; that is, he would receive only 
ec dollars per acre, while A received twenty dollars. 
This amount of difference in situation, would be the same 
as a difference of one-half in fertility, or actual produc- 
tiveness. 

Hence, fertility being the same, productiveness will be 



204 DISTRIBUTIOlff. 

aa situation ; and situation being the same, produc(dTe< 
ness will be as fertility. And we see that these circum- 
stances will always, when opposed, counterbalance each 
other ; that iS; land at such a distance from the market 
that it costs one half the price of products to transport 
Hiom, will be of the same value, or actual productiyeness, 
as land of half its fertility, contiguous to a market. 
And hence, in estimating the productiveness of land, these 
circumstances are always to be considered together. And 
we see that land of the greatest fertility may be so far from 
ft market, that the cost of transportation will leave a profii 
insufficient to repay the cost of cultivation. In such a 
case, such land will be worth nothing. 

Tlie highest degree of productiveness is realized when 
these tivo circumstances are combined. Fertile lands near 
to a market always command a high rent. Internal im- 
provements which diminish the cost of transportation have 
the effect of thus combining fertility and situation. This 
has been one important cause of rapidly enhancing the 
yralue of agricultural lands in the valley of the Mississippi, 
where distance from the sea-board and the consequent ex- 
penses of transporting their produce balanced all the 
advantages of their superior fertility, until steam naviga- 
tion and railways were extended thither. 

In the settlement of a new country, another considera- 
tion has weight in the choice of lauds first occupied. The 
most fertile lands and those most favorably situated may 
require great labor to bring them under cultivation, and 
hence inferior lands may be first selected. This however 
is only <in other aspect of the same principle. For in any 
branch of industry, our estimate of productiveness must 
take into account the cost of labor necessary to secure the 
product. No agricultural lands will command a rent, 
whose crops do not yield a surplus above what is necessary 
to support the laborer. While the process of clearing 



COISrSIDERATIOiq^S AFFECTIKG REiTT. 205 

heavily timbered land is going on, the crops will hardly 
keep the laborer alive, though the crops of subsequent 
years may yield a full compensation for that first cost As 
these later returns come in, such lands yield rei\t which 
steadily increases until the full measure of its productive-, 
ness is reached. 

2. The Growth of Populatmi and its concentration in 
neu centres. This means only that whatever increases the 
demand for agricultural products, or in any way improves 
the market for them, enhances the value of the lands and 
warrants the payment of increased rents. The natural 
growth of a population devoted chiefly to agriculture mul- 
tiplier various wants which can be met only by some form^ 
of mechanical industry and mercantile enterprise. Those 
who are thus employed, by necessity collect together into 
towns and villages. Thus a large population is collected, 
ivhir.h raises nothing from the earth, and their wants must 
be supplied by the agriculturists in their neighborhood. 
Hence, immediate markets for produce are created in 
every district ; that is, although the farmer cannot remove 
his farm nearer to market, the market has removed nearer 
to him, and the diminution of distance has increased the 
productiveness of his farm, as much as though its fertility 
nad been increased, or it had been removed to the sea- 
board. Thus, within fifty years after it was occupied by 
farming emigrants, Western New York was studded with 
villages, many of which soon grew into large cities. The 
same thing has been illustrated on a still larger scale in the 
rapid increase of population and wealth through all the 
western states. With all this development, agricultural 
lands have increased in value, and command rent accord- 
ing to their proximity to the new markets thus formed. 

The development and use of ivater-powers and other 
facilities for manufacturino: has the same effect. Such 



206 DISTEIBUTIOIf. 

enterprise brings in a rapid increase of population by im^ 
migration, who must be, to a considerable extent, fed hy 
the ])roducts of land in the vicinity. Agricultural and 
manufacturing industry have thus a most intimate reUtioD 
to each other, and the free growth of both in near prox- 
mity, promotes the most general and genuine thrift. B^ 
the forming of such near markets, lands of inferior fertilit} 
may come to bear a considerable rent, because every such 
community lequires large supplies of vegetable products 
which do not well bear long transportation. The develop- 
ment of manufacturing industry in New England has 
thus kept up the value of her poor farming lands in spite 
of the competition of the richer soils of the west, which 
through faciliHes for transportation have sent on immense 
quantities of produce. It will not pay for the New Eng- 
land farmers to raise wheat, but for potatoes and othei 
vegetables, bulky and perishable, needed in the manufao 
turing towns close by, they have a market of their own 
which sustains the value of their lands. 

3. Rents are affected by some Incidental Circum- 
dances. 

a. Natural Beauty of Situation adds to the value 
of a farm. Of two farms equally productive, many 
men would give a decided preference to that which com- 
manded a view of the richest and m.ost beautiful prospect, 
or of which the trees and shrubbery were so arranged, as 
to give the greatest pleasure to the beholder. For this 
preference, most men would be willing to pay an additional 
price. This additional price will increase with the wealth 
and the improving tastes of the community. This is a 
cinjumstance which should always be borne in mind by 
the occupiers and owners of land. It costs but little moro 
labor to lay out an orchard regularly and heautifully, than 
io lay it out irregularly and clumsily. It costs nothing to 



IJOXSIDERATIONS AFFECTIXG REXT. 207 

let a tree stand where it adds beauty to a prospect, and 
it costs very little to plant one, where it will have thf 
Game effect. A neat and convenient house consiimei 
neither more lumber nor nails, nor labor, than a slovenlj 
and inconvenient one. And yet on these differences, very 
.11111 cb of the value of a farm depends. 

J-, Tlie value of land depends much on the Intelledncc^, 
and Moral Character of the Neigliborliood. 

Of two farms of equal productiveness, but m very dis- 
similar moral and intellectual communities, almost every 
one would prefer that which, in these respects, possessed 
the greater advantages. A man who has in any degree 
cultivated his own intellect, prefers the society of those 
whose intellects are also cultivated. A parent would 
always prefer a neighborhood in which his children would 
receive the advantages of education. A man who had 
been accustomed to religious observances, woukl choose to 
reside where be could enjoy the beneiits of religious in- 
struction. And every man, let his dispositions be what 
they may, will choose to live in a neighborhood, in which 
the moral character of the people is a protection from dis- 
honesty and robbery, and where his children will be, as 
little as possible, exposed to the contaminations of vice. 
It is manifest that each of these considerations would 
form aground of preference, for one situation over another, 
and for this preference, every reasonable man would be 
willing to pay. Were two farms thus differently situated, 
sliere would be many more buyers for the one than for the 
ether, and the advantage would all be or the side of tho 
most intelligent and moral community. 

Hence we see that, besides the advantages ^hich intel- 
ligence and virtue confer upon the character of a people, 
there is also an additional advantage in the increased value 
of property which they produce. It may be fairly ques- 
tioned, whether this, of itself, be not sufficient to repay tha 



208 DISTRIBUTION". 

whole expense of literary and religious inslitutions. There 
ai'e towns in New England in which, in a few years, the 
price of real estate was doubled, for no other assigna- 
ble reason, than that of the literary and moral adyantagos 
which they hold out to residents. This mode of increas* 
ing the value of property, is deserving of more attention 
than it has srenerallv received. 

c. Improvements put ujoon the land are also to be 
taken into account. Under this term are included drain- 
age and fertilizers applied to the soil, the benefit of which 
runs through a series of years ; also fences, barns and other 
outhouses and a residence for the family. These thinsfs 
fire indispensable to successful agriculture and every addi- 
tion increases the utility and desirableness of the land. 
The unthrifty appearance of a farm whose improvements 
are neglected and run down, is in itself repulsive, enough 
RO, often, to overbear other considerations. One is hardly 
willing to stop and inquire about the intrinsic fertility of 
fiuch a piece of land. lie will fix his choice rather on even 
wild land, untouched, at least unmarred by the hand of 
man. 

It is to be observed however, that wdiere the improve- 
Tnents are in excellent condition, rarely is the value of the 
-and, indicated by either rent or purchase-price, increased 
in proportion to the expenditures laid out on these im- 
provements. The reason of this is that, with respect to 
Bome of these outlays, the benefit is hidden, not apparent 
to the eye, as in the case of drainage and fertilirers ; 
8*especting others, as of the barn and the dwelling, every 
man has his own taste, and what may have been of great 
interest to the original proprietor, may fail to be apprecia- 
ted by a purchaser or tenant. Often a dwelling house 
is erected costing as much as the whole farm without it is 
worth, t'i'us doubling the capital invested. But all thia 
will add nothing to the actual products, the matter of 



REirr OF MI]S^IJ^G LANDS. 209 

chief conseqnence in the mind of one proposing to bay or 
rent the place. 

It must be added that in this country, almost invaria- 
bly, rented farms are rapidly deteriorated with respect tc 
both fertility and improvements. The temporary tenant 
seeks to realize the largest profits from immediate harvests,, 
having no interest in the continued productiveness of the 
land. Hence, unless he is occupying the farm on long lease, 
he will not spend much in enriching the soil or in keeping 
buildings, etc., in repair. To avoid this deterioration, the 
terms of the lease are sometimes so drawn as to require 
certain outlays annually, to keep up the land and its ap- 
pendages. 

For Mining Lands rent is determined almost entirely 
by productiveness, real or prospective. On the first dis- 
covery of mineral treasures, the value of the land in which 
they are found, is at once increased according to the jirofife 
anticipated from working them out. 

Suppose a farm to be worth the ordinary price of land , 
and the owner discovers on it a bed of iron ore which, 
after deducting the necessary expenses of working it, and 
paying the labor and skill necessary to the operation, will 
yield one thousand dollars a year. The farm or the land 
necessary for the mining operations will rent for one thou- 
sand dollars a year, or will sell for such a sum as will yield, 
at the ordinary rate, one thousand dollars as interest. In 
this case it is manifest that the original owner of the prop 
erty will be a gainer by the discovery, to the full amount of 
the increase in the price of his land. But here the peculiar 
gain ceases. To other holders who may come after him, 
it io merely an investment of the same nature as any othei 
investment, and will yield no more than the ordinary rate 
of profit. 

The case is the same with a copper, a silver, or a gold 
mine. The owner of the land at the time of the discovery, 



310 DISTRIBUTION?". 

becomes greatly enriched in consequence of tliis new pro- 
duct, which may be derived from his property. But aftel 
this rise, when a new purchaser comes into possession, the 
peculiarity of the gain ceases. A rich gold mine will rent 
or will sell for more than a poor one, and its price or its 
rent, will be in exact proportion to its productiveness, just 
%s a farm, a mill privilege, or any other property. It is a 
gomewhat remarkable fact, that mines of the precious 
metals are in general, singularly unprofitable, after they 
have passed out of the hands of the original owners. It 
has- grown into a proverb in South America, that if a man 
own a copper mine he will grow rich, if he own a silver 
mine he will gain nothing, but if he own a gold mine he 
will certainly be ruined. The fact, however, may be easily 
accounted for. The imaginations of men are always 
strongly excited by the contemplation of the precious metals, 
and it is rare that anything but experience can teach 
them, that they may buy gold too dear. Ilcnce, they do 
not compute the chances of profit in the production of 
gold, as coolly as they do in any other case. But the pro- 
duction of gold is governed by as fixed laws as the produc- 
tion of wheat. Gold cannot, any more than wheat, be 
produced by an e:ffort of the imagination. It is the result 
of labor and skill and expense. And if these be greater 
than the revenue, a man will as assuredly be ruined by 
producing gold, as by conducting any other unprofitable 
business, his imagination to the contrary notwithstanding 

In cities,- where population is concentrated within nar- 
row limits, rents for lots and buildings are determined 
almost entirely by locatioji, with respect to facilities for 
business, the social character of the neighborhood, and the 
freaks of fashion. A man needs a house which will furnish 
tlie necessary conveniences for his family. lie also wishes 
one within a convenient distance from his place of emplo/- 



KElfT OF CITT LOTS. 211 

ment. The further his dwelling is removed from his store 
or his counting-room, the longer time is occupied in pass* 
ing from the one to the other, and the less are the convO' 
niences of his residence. Hence, he will be willing to pay 
for the choice, and thus the price of land gradually di- 
minishes from the centre to the circumference of a thickly 
settled town. Often also, he is willing to pay an estia 
price for a residence in a respectable, or faslimiahle quar- 
ter of the city. 

In a place of great com.mercial actiyity, another class of 
buildings is needed for the tra7isaction of lusiness. Where 
many exchanges are to be made in the course of a few 
hours eyery day, it is of importance that the exchanges 
should be as near together as possible. And where a large 
number of strangers is daily collected for the sake of mak~ 
ing purchases, it is important to the seller to be so situa- 
ted as to be in their immediate yicinity. A mert^hant 
whose store is in the centre of business, can easily sell tcK 
times as much in a day as one who is half a mile off from 
the centre. Ilence, he is able from the mere fact of differ- 
ence in situation, to realize a much greater annual profit 
in the one place than in the other. For this difference 
of productiveness, he will be willing to pay a price ; and 
hence, in large cities, the most central situations, or, as 
they are called, the best stands for business command a 
very high rent, and a corresponding price. A few square 
feet of land in the centre of the city of ISTew York, will 
sell for more than many acres of the most productive soil 
in any part of the Union. And as the price of land in 
such cases, is owing entirely to the demand for the pur- 
poses of facilitating trade, it can only rise with the increas- 
ing prosperity of the place. Ilence, the rise or fall of real 
estate m any town, if it be truly a rise in value, and not a 
rise from speculation, is one of the surest indications of iti 
mercantile prosperity, or of the reverse. 



213 DISTRIBUTION?-. 

WitJi the growth of cities, the centres of business are 
Hihject to change from time to time, occasioned sometimea 
by the need of enlarged space, often by the mere whims of 
fancy or bold speculation. Forty years ago, most of the 
jobbing business in New York was done in Pe-ni Street, 
and property on that street commanded the best rents in 
the cit}^. In course of time, that branch of business wa3 
transferrf^d to another quarter, and Pearl Street stores to- 
day, rent for a small fraction of their former rates. The 
bold speculation of one man had the effect to transfer the 
fashionable retail business of Chicago, from Lake Street to 
State Street Avith a corresponding revolution in rent. Par- 
ticular branches of business are apt to concentrate, each in 
its own part of a city, and often for reasons which noboay 
can explain, and in spite of great inconyeniences. Thus 
more or less of uncertainty is attached to city property 
rented for business, and this fact must be considered when 
capital is invested in tliat way. 

The remuneration of capital in the form of real-estate 
is, except in the favorite locations of great cities, generally 
less than the average rate of profits from business. We 
may name several reasons for this difference. 

1. Property in land is considered more secure than any 
other property. The princijial may be considered inde- 
structible. Uence, it is the safest of all investments, and 
nothing is paid for the risk. 

2. The title to lands can he more definitely secured than 
that of any otlier property. The legal instruments by 
which it is secured to the individuals, are a matter of pub' 
lie record. The boundaries of land can be, and commonly 
are, ascertained with entire precision. The land itself can 
not be removed. Ilence, the ownership of it can be alwaya 
ascertained and conveyed to posterity. 

3. Men generally derive some influence and co?isidera- 
tionfrom the ownership of land, which they do not derive 



REXT LESS TnAJf OEDII^'ARY 1J5"TEREST. 213 

from any other possessions. Formerly, tlie right of suf- 
fras^e was restricted to landholders. The existence of thij 
rule shows the degree of consequence which attached to 
this sort of possession. And the fact that it lias so fre- 
quently existed, while the contrary rule has never existed, 
tliows the general tendency upon the suhject. 

4. There' seems to be i7i the hiwian race a strong dispo- 
iiiion to become the oiujiers of land, and a natural love for 
the pursuit of agriculture. Men of all professions look 
forward to some period of life, in which, relieved from the 
toils of business, they may retire to the quiet country. 
To whatever extent this disposition exists, it of course tends 
to raise the price of land above that of other property, 
paying the same rate of profit. If a man receive a part of 
his remuneration in pleasure, he will be content to receive 
less in the form of money. 

5. The natural progress of society tends to increase the 
value of landed property. This has been already illustrated 
Ti general, in the remarks which have been made upon 
rent. And it must be evident that, land remaining the 
same, and the population continually increasing, the de- 
mand for land must continually increase. And, besides 
this, the progress of society creates not only a more exten- 
sive demand for land, but a much greater variety of de- 
mands. As such is the tendency, men are willing to hold 
land at a less interest than other jiroperty, in the hope 
that the rise of price at some future time, will compensate 
for their present loss. Thus men frequently invest money 
in wild lands, expecting to reap no profit from them for 
many years, but calculating upon a rise of price at some 
time o^' other, which shall abundantly repay both princi' 
pal and interest. 

Property in land cannot be run away with, nor destroyed 
nor fraudulently disposed of. Meantime, while society is 
advancing, its hot torn- value steadily increases. In cases 



214 DISTRIBUTION?'. 

not a few, we have seen a small capital, in this way grow 
into a fortune. For this reason, an owner of city-lots is 
willing for a very moderate ground-rent, to grant otliers 
the privilege of building on his land, since he runs no risk 
and has the benefit of increased value at the end of the 
lease. The only drawback is in the liability to excessive 
taxation by corrupt "rings" in citj-governments. 

Yet it should be understood that the purchase of lands 
in country or in city to be held unimproved for mere spec- 
ulation, is opposed to the interests of occupants in the 
vicinity and to the general good, and should be discouraged 
by all practicable legislation and by sound public opinion. 



CHAPTER XVL 

INTEREST. 

Interest is the compensatw?i jjaid for the use of money 

$orroived. The most convenient form of capital to be 
loaned, for both lender and borrower, is money. Loans 
are therefore most commonly made in money. Interest is 
always reckoned at a certain per cent of a defined sum o: 
money, which is called the princiijal. The percentage 
agreed on is called the rate, and is usually stated as the 
rate per annum, though often payable at shorter intervals 
than a year. In cases where other kinds of property are 
transferred, while payment is deferred, an estimate is com- 
monly made of the value in money, and interest is charged 
accordingly on the deferred payment, at the current rate. 
When credit is extended in any way beyond a limited 
time, the value involved is set down in terms of money, 
and interest on the debt is reckoned at some rate agreed 
on by the parties. Thus one may buy land for a site, and 
have a building erected on it, and purchase a steam-engine 
and machinery for a mill, and cotton to be worked up in 
the mill, and at each step give his note, for a part of the 
value, to be paid at a certain date^ with interest. Or, in- 
stead of doing this, he may borrow of a friend the money 
which will meet his deficiency, giving his note for the 
whole on interest ; and then set up his establishment com* 
plete by purchases made for cash. The transactions ara 
essentially the same. The land, the mill, the engine and 
the cotton are what he wants, and what lie actually bor- 
rows and uses as a part of the capital of his business. In 



216 DISTKIBUTIOK. 

one way or the other he becomes owner of the property, 
but debtor to some party for its value, and since it is con- 
templated that the debt will be paid in money, it is essen- 
tially the same as if the credit were given in the form of 
money-loan. 
Hence, interest is commonly called the price for money 
It is evident, however, that it is not the money, but the 
capital which is wanted ; because as soon as the man 
obtains the money he at once exchanges it for capital. 
This, therefore should always be borne in mind, that when 
we speak of the price of money, we mean the price of 
capital, which the money represents and for which it is 
dlways exchanged. It is evident that the laborer may 
derive very great benefit from the loan of money, that is, 
of capital. He is thus enabled to employ advantageously 
all his skill ; and thus a loan for a few years is very fre- 
quently the commencement of a fortune. Hence we see 
bow very absurd is the prejudice so commonly excited 
against money-lenders and money-lending institutions. 
Were there no money-lenders, there could be no money- 
borrowers ; and were there no money-borrowers, the indus- 
trious artisan would surely be the greatest sufferer. It is 
not denied that the money-lender loans for his own advan- 
tage. But is it any more odious for one man to lend for 
his own advantage, than for another man to borrow for his 
own advantage ? It is not pleaded that the one, any more 
than the other, is benevolent. This is quite another ques- 
tion. All that is pleaded is, that both, in so far as tlio 
Uiings themselves are concerned, are equally honest and 
honorable. In both cases the man benefits himself wliile 
he benefits others ; and this is all that can. be said in favor 
of any other exchange. It is not of couise denied, that 
the lender may be oppressive, tyrannical and avaricious 
nor that the borrower may be fraudulent, indolent, and prof* 
ligate. But this does not alfect the nature of the transac* 



IKTEREST. 21 \ 

tion per se. "We here speak of tlie tiling itself, and not of 
the manner in which either paity may act, in consequence 
of or in connection with it. 

The term "interest" is a Latin verb in the impersonal 
farm, and means it is of advantage. Recognizing the nat 
aral and necessary partnership of capital and labor in pro- 
Jucing wealth, the term implies always a mutual advan- 
tage to borrower and lender. This inierest, or mutual 
advantage marks the prime difference between a loan and 
a gift. It is therefore, altogether equitable that capital 
loaned, should be paid for. Interest is no extortion, and 
no unreasonable demand. It is for the advantage of the 
skilful laborer to borrow at a reasonable interest, as much 
as it is for the advantage of the capitalist to loan ; and it 
is as much for the advantage of the laborer as the capital- 
ist, to enter into that partnership, by which they share the 
profits of the operation between them. It is by reason Ox 
this partnership, that the laborer receives the wages o. 
skill, instead of the wages of meYe physical force ; and the 
capitalist is able to employ all his capital in production, 
jnstead of employing only that portion of it which he could 
employ with simply his own personal industry and skill. 

When money is borrowed to provide for the immediate 
support of an individual or a family, or for some present 
gratification, the property which it represents is consumed 
at once without returns of added wealth ; but the loan is 
made in some anticipation of means to be realized from 
labor or other sources at a future day, and the considera- 
lion is even then, a supposed advantage to the borrovier aa 
well as to the lender. 

Loans made to an extravagant spendthrift who haa 
property, simply anticipate the avails of that property, tc 
be sold at a future day. On the side of the borrower, 
present indulgence is the only advantage ; if there is no 
property to secure the loan, it is to the lender, all the same 
10 



218 DISTRIBCTIOK. 

as money thrown away. When a loan is asked to reliova 
the immediate needs of one reduced to poverty, the appeal 
is to one's benevolGiice rather than to his interest. If the 
favor is granted, though for form's sake or to relieve the 
sensitive feeUngs of the applicant, a promise to pay with 
interest may be accepted, it is really au act of charity y anrl 
may as well be so accounted. 

The leading Considerations "which determine 
the Hate of interest, are four, viz., Rish, Oonvenience 
of l7ivestment, Productive7iess of Qajntaly and the Ratio 
hetween Supply and Deynand of Cajntal. 

1. Risk, A loan is made on the promise of future pay- 
ment. There is always a risk that the prom.ise may fail. 
The rate of interest must be adjusted to the degree of the 
risk. He who would loan to one man at six per cent when 
he was sure of being repaid, surely would not loan to 
another man at the same rate when there were fifty chan- 
ces in a hundred that he would lose both princip)al and 
interest. At any rate he who did so, would very soon ccJase 
kOaning altogether. 

This risk depends upon several circumstances. 

a. There is a difference in risk, arising from the differ 
enf modes of employing capital. For instance, property at 
sea is more liable to destruction than property on land. 
Hence, the ancient Athenians made a difference between 
land and marine interest. The former was at twelve, and 
the latter as high as sixty per cent per annum. Property 
in merchandise is more liable to be destroyed, than prop- 
erty in houses ; property in houses than property in farms. 
A house in the country is safer than a house in town ; 
and a stone house is safer than a wooden house. Propeity 
employed in the manufacture of cotton, is less liable to be 
destroyed than property employed in the manufacture o* 



INTEREST AFFECTED BY RISK. 219 

^nnpowder. Now when a capitalist makes a loan to he 
invested in some one of the above forms of capital, and his 
only security for payment consists in his hold upon the 
property in which it is invested, it is evident that hig 
riik^ other things being equal, will depend upon the safety 
af that property. Ilence, it is reasonable that his remun- 
eration for risk should correspond with the greatness of 
that risk. 

i. The second circumstance which enters into risk, ia 
the personal character of the iorroiver. This is made up 
of industry, skill, knowledge of business, pecuniary ability, 
and moral character. When these have not been tested, 
or where, having been tested, they have been found insuffi- 
cient to the safe conduct of business, there will be a corre- 
sponding indisposition to loan to a man of such character, 
because every one feels that there is in this case, more than 
usual risk. Hence, such a person cannot borrow, unless 
at an advanced premium, or at a higher rate of interest. 
On the contrary, if a man has conducted an extensive busi- 
ness for a long period with undeviating success, he attains 
to a high mercantile credit, and is enabled to borrow 
money at the lowest rates. But if a merchant is known 
to be frequently embarrassed, if he has ever, especially moro 
than once failed, mercantile confidence in him is iestroyed. 
No one will lend him, except on the most nnfavorablig 
terms. 

I^hese two causes of variation of risk are apparently 
modified by the practice of endorsing private notes. If 1 
want money for the most hazardous investment, or am oi 
the most doubtful credit, if I can offer my note endorsed 
Dy persons of established mercantile character, it is raised 
at once to par ; that is, the extra risk is immediately 
removed. But this modification is only apparent. The 
endorser will rarely do this for nothing. He either him- 
self receives a premium for it directly ; that is, he is paid 



220 DISTEIBUTIOI?". 

for taking the risk of default of payment ; or else two per- 
sons mutually endorse for each other, and thus, the risk 
which A assumes for B, is paid for hy B's assuming a 
similar risk for A. It is singular that any one should e\cr 
ask another to endorse his note merely as a matter oi 
comity. It should always be a matter of business, and be 
paid for like any other business transaction. A merchant 
should no more ask another to endorse his note gratui- 
tously, than he should ask him to insure his house gratui- 
tously. The nature of the transaction is precisely the 
same. The risk in the one case, is frequently as great aa 
in the other, and it should always, as much in the one case 
as in the other, be a matter of compensation. 

c. The risk incurred in lending capital, is affected hy 
the character of the Government, This aHects both private 
and public contracts. 

If justice is well administered, and every man has 
all reasonable security that he will have the whole power 
of the society at his disposal, in order to enforce a just 
contract, of course the risk is less, and the rate of interest 
lower, than when experience has shown that no such 
security exists. Hence, we see the economy of good legis- 
lation, and of a wise, just, and incorruptible judiciary. 
The additional interest on capital, incurred in consequence 
of the bad administration of justice in a country, would 
annually pay the expenses of all the courts of law, ten 
times over. 

The same results flow from confidence, or the want of 
confidence in the stability of a government. A revolution 
not unfrequently dissolves contracts, dissipates security, 
and renders obligations valueless, both by destroying tjie 
evidence of their existence, and annihilating the means of 
enforcing them. Hence, when such an event is feared, 
men will not loan, except at an exorbitant premium ; and 
they generally prefer removing their property to soma 



CONVEN'IEiq'CE OP II^VESTMEJTT. 221 

other country, to subjecting it, for any premium whatever, 
to the risks of a revokition. 

The same may be said of puMic cojitracts. Govern- 
rccnts, in whose stability and good faith undoubted confi- 
dence is reposed, borrow the most enormous sums at tna 
lowest rates of interest. Those which are in daily dangei 
of being overthrown, can scarcely borrow at all, or, if they 
do borrow, it is at the most ruinous premium. The South 
American governments can scarcely borrow at any interest. 
Great Britain, notwithstanding her present enormous debt, 
borrows at three or four per cent to any amount she 
pleases. Nay, so great is the public confidence in her per- 
manency and integrity, that probably there is scarcely a 
civilized nation on earth, which does not at present own 
some share of her national debt. The greater the civil 
commotions of other countries, the more easily can she 
borrow, because capitalists naturally invest their property 
where they are confident of its security, and confident that 
ts interest will under all circumstances, be regularly paid. 

2. The rate of interest is varied by the Convenience of 
the investment. The convenience of an investment depends 
upon several circumstances. 

a. Facility of transfer. When a man loans capital, 
he is of course ignorant of the future, and does not know 
how much he may need it at some subsequent time. If he 
loan at six per cent for two years, he may in six months 
find some investment in which it would yield him eight 
per cent, but having loaned it for two years he cannot now 
withdraw it. Ilence, it is a great advantage if it can be 
BO invested that he may without loss, recall it at any 
moment. 

5. Permanency of investment. If a man does not wish 
to withdraw a loan, it is an advantage to him to have it 
continue for a long period, because he is thus saved tha 



J822 DISTEIBTJTIO}^. 

loss of interest whicli would occur during the time of trans- 
fer, and the trouble and inconvenience of finding anothei 
borrower. This is of special benefit to widows, orphans, 
persons retired from business, and all those persons who 
wish not to labor with their own capital themselves, but 
only to live upon the interest of it. 

c. Punctuality in the payment of interest. It is a 
great convenience to those who invest capital to be able to 
calculate with certainty on the payment of interest. They 
can thus with ease, adjust their expenses, both to the 
amount of their income, and to the time of their receipt 
of it. If they wish to re-invest the interest, they can 
make their arrangements with certainty, and thus in 
vest it with the greatest advantage. They are also 
saved the trouble of looking after their debtors, and 
they avoid the inconvenience of that personal alterca- 
tion, which is liable to arise respecting pecuniary trans- 
actions. 

When any form of investment combines these advan- 
tages, men are found to prefer it to one which is destitute 
of them, and they will loan their money on these terms at 
a lower rate of interest than on any other. Debts in this 
form are said to hQfundedy and the creditors are said to 
hold stock. Public debts are generally thus arranged. The 
various companies formed for banking purposes, and pur- 
poses of internal improvement, are constructed on the same 
principles. Every one who contributes a certain amount 
toward the capital of such a company, receives a certifi- 
cate that he owns such a share of that capital. He is en- 
titled to his portion of the profits at staled times. lie 
may retain this certificate himself as long as he pleases, or 
he may sell it at any moment, to any purchaser who may 
want it. Hence, money may always be borrowed imdet 
these circumstances, at the lowest rates. 



IITTEREST AFFECTED BY PKOFIT OF CAPITAL. 223 

3. The rate of interest is affected by the Productiveness 
(tf Capital. 

When the risk is the same, we find interest higher in 
gome countries than in others, and higher in the same conn- 
Irj at one time than at another Thus, when the security 
is equally good, interest is higher in this country than in 
Great Britain, and in this country it is higher in the new 
than in the older states. And, we also find that it is lower 
now in Great Britain than formerly, and that it generally 
becomes less as a com.munity grows older. Much of this 
difference depends on the average Profit of Capital. The 
profit of capital is that annual yalue which it yields to the 
possessor, after he has deducted the principal, and paid 
the expenses incident to his actual operation. Thus, if by 
the use of one thousand dollars a year, I am, after re- 
placing the principal and all the cost of my operation, one 
hundred dollars richer, this one hundred dollars is the 
profit of my capital. Now, the greater this is at any time, 
the greater will be the sum which I shall be willing to pay 
for the use of one thousand dollars. If by the use of capi- 
tal, I can, after paying all expenses, realize twenty per 
cent, I can afford to pay more for the use of it, than if, 
after paying all expenses, I could realize only five per cent. 

We may specify a few of the causes on which the dif- 
ference of profit of capital depends. 

a. Fertility of Land. He who wished to borrow 
money to invest in agriculture, could afford to pay higher 
interest when the land produced fifty bushels to the acre, 
than when it produced only twenty-five bushels to the acre, 
provided he could procure the land for the san e purchase 
money. 

h. Productiveness of Industry. The use of natural 
agents adds greatly to the value annually produced from a 
given amount of capital. This will tend to raise the price 
of capital, since a man will give more for money to in- 



224 DISTEIBUnOIS". 

vest in a macliinG "which will produce one thonsand dollars 
^ year, than in one which will produce only five hundred 
dollars. It is true that the influx of capital will tend to 
bring any one branch of industry in process of time to tne 
general level. But tliat progressive increase of productive- 
ness, which belongs to the progress of civilization, tenda 
to keejy up the price of capital, w^hich would otherwise fall 
linreasonablv low. 

c. Tlie Demand for Excliange. The greater the demand 
for exchange, the more profitable must be that capital 
which is invested in exchange. In a town where mercan- 
tile business is brisk, and a man can sell all his stock at a 
good profit two or three times in the course of a year, 
money will bear a higher interest than in a town where 
exchanges are slow, and he must keep his goods on hand 
for a year or more. 

4. The rate of interest is especially affected by the 
Uatio letiueen Supiiily and Demand of Capital. This pro- 
iuc^es the same effect upon the rate of interest as upon 
everything else. Whatever be the profit of capital, if the 
nipply be very small, the price will rise in proportion^ 
since he who, by employing it at a high price can make a 
small piofit, will rather so employ it, than, by doing with- 
out it, make no profit at all. Thus if, by the use of one 
thousand dollars for a year, I could realize three hundred 
dollars, I might be willing to pay two hundred for the use 
of it, rather than not to have it ; for in the latter case I 
should gain nothing. If then, there were but little capital 
in the market, and many persons were as willing to give thi8_ 
rate of interest as myself, I should be obliged to give it. 
But if on the contrary, there were many persons desirous 
of lending, and there was much capital in the market, and 
I were the only person who would be willing to give thii 
interest, they would underbid each other, and I should be 



1 



INTEREST IN A NEW COUNTET. 2*36 

able to procure it of him who would loan it to me at the 
lowest rate. I might then be able to borrow it for one 
hundred and fifty, one hundred, or even sixty dollars pe; 
annum. 

In a new and prosperous country, interest is alwayf 
high. This results from several reasons affecting the ratio 
of Supply and Demand. 

1. Land is very cheap, and at first is all of very nearly 
the same market price. In many cases it can be had for 
almost nothing. 

2. Land is very fertile. The produce of a soil when 
new is generally greater than ever afterwards. 

3. The soil, not at first needing manure, requires but 
small investments of capital, and these are very richly repaid. 

4. The inhabitants of a new country can carry with 
them but few of the conveniences of life. These must be 
purchased after they arrive there, and must either be made 
on the spot, or be importea. Neither of these can be done 
without capital. And as the demand for these conve- 
niences is imperative, and as the income of land is abun- 
dant, the settlers are willing to pay a high price for them. 
Hence, the profit both of mechanical and of commercial 
labor is very great, and the price which is paid for capi- 
tal is very high. 

5. The inhabitants of a new country have generally 
very numerous exchanges with the aborigines. Such ex- 

hanges are exceedingly profitable. But these cannot be 
arried on without capital. These facts all tend to create 
1 great demand for capital. 

On the- contrary, the siqyply of capital in a new coun- 
try is generally small, because emigrants are by no means 
the most wealthy classes of a community. Those who are 
living in peace and prosperity at home, are not generally 
the most willing to brave the perils and hardships of the 
wilderness. 

10* 



226 PISTEIBUTION". 

Furthermore, these who are not inclined to expoB« 
tlieir persons to the hardships of a new country, are not 
inclined to send their capital where they are not present 
to watch over it themselves. Hence, it is difficult for a 
while, for a new people to borrow, and they can overcome 
tills difficulty only by the payment of a high interest. 

These are the causes of the high rate of interest in new 
f»ountries on the borders of civilization, and generally, 
wherever savage and civilized nations intermingle. 

As a country becomes settled, however, these causes 
begin to operate less powerfully and thus the rate of in- 
terest gradually diminishes. 

1. The annual produce of the earth is, year after year 
changed into fixed capital, and thus the demand for capi- 
tal is met in part by a home supply. 

2. The fertility of the soil diminishes, so that it is ne- 
cessary to pay less inter&st. 

3. Land is sold at different prices, according to its fer- 
tility, and as it rises in price, the degree of profit to the 
j>urchaser is diminished. 

4. The wants of the natives are supplied, and hence, 
Dne source of gain is dried up. 

5. A more perfect knowledge of the country, and more 
perfect confidence in its prosperity, diminish the unwil- 
Jingness of persons in older countries to loan, and hence, 
capital from abroad may be procured with greater facility. 

The gradual operation of these causes must tend to 
reduce the rate of interest in different countries to the 
3ume average. Yet there are always in each country or 
gection of country, peculiar circumstances which fix for a 
period, longer or shorter, what Mr. Fawcett calls ''some 
point of steady eq^dlihriu7n about v/hich the current rate 
of interest in that country, oscillates." Thus in England, 
for many years, the average rate has been about three and 
a quarter per cent, in Holland it stands as low as two pei 



imTEKEST AFFECTED BY FREEDOM OF CAPITAL. 227 

cent, in "New England and New York it is six or seven 
per cent, in Wisconsin and Illinois it long stood at ten 
per cent, but is now evidently declining. 

The constant tendency of civilization, is to the reduc- 
tion of the rate of interest, because wealth increases rapidly, 
and risk is diminished by more perfect securities. As 
2apital becomes more abundant, in proportion to the uses 
tliat are to be made of it, it commands a less price, thai 
IS, a man can gain less than formerly with a capital of one 
thousand dollar?, and hence, he is willing to pay a less 
interest for it. But it is also to be remembered that a 
much larger proportion of men are worth one thousand 
dollars than formerly, and that for one that was worth one 
thousand dollars fifty years ago, there are fifteen or twenty 
who are worth ten thousand dollars now ; that is, met 
with the same labor are able to secure as many or more 
comforts than formerly, but they are obliged to do it by 
the use of a larger amount of capital. They are obliged 
to labor with a larger capital, but that large amount is as 
easily procured as a less amount was formerly. The com- 
plaint so frequently heard of the increasing difficulty of 
accumulating property, is really unfounded ;• and taking 
the difficulty or ease of procuring capital into the account, 
the more advanced periods of society are as favorable aa 
tny to the industrious classes. 

The lest adjustment of supply and demand depends on 
ihe freedo7n of capfitaL By freedom, of capital, is meant 
the unfettered liberty of the individual to employ his capi- 
tal in any innocent way that he pleases. When this lib- 
erty is enjoyed, every one chooses that way in which he 
eap])Oses that he shall be most successful. The larger the 
profit he realizes, the larger will be the interest which he 
will be willing to pay. AVhen he is obliged to withhold it 
from a mode of investment which he prefers, and to em- 
ploy it in one which he does not prefer, he must divert W 



228 DISTElBUnON. 

from a more to a less profitable mode of investment, 
Hence, as he is obliged to employ it in a less profitable 
instead of a more profitable investment, he can afford to 
pay loss interest, and the price of interest, by the eifect 
of Ihis interference, must fall. Such must be the effect of 
all monopolies, and of all means by which the active 
power of capital is diminished. 

What has been said brings us to the following general 
conclusions : 

1. That, oilier things being equal, interest will he high 
when the risk is great, and loio, lohen the risk is small. 

2. That interest ivill be high, luhen the profit of capital 
is great, aiid loiu, when the profit of capital is small. 

3. Tliat both of these affect each other tvithin certain 
limits; that is, luheii profit is great, if the risk be also 
great, interest will be very high, because the increase of risk 
diminishes the supply. 

4. But when profit is low and the risk is great, there 
%oiU be no loaning whatever, because what is paid for risk, 
will be more than can be gained by nse, and men could no* 
profit by borroiuing. 

The rat€ of interest will be always affected by every 
circumstance which affects either risk or profit of capital. 
War, or the rumor of war, by increasing the risk, raises 
the rate of interest in property affected by it. In prop- 
erty not affected by it, the same cause depresses the rate 
of interest, because it diminishes the means and oppor- 
tunity for production, and of course diminishes the profit 
of capital. On the other hand, the discovery of any new 
mode of profitably employing capital, raises the rate oi 
interest by creating an increased demand for capitaL 

The rate of interest at any particular time or place, la 
ixCii of itself an indication of the prosperity or of the de- 
cline of a country. The indication is to be sought for, nol 



• INTEREST AS Alf IKDEX OF PEOSPEEITY. 22S 

m the rate of interest, but in the cause bj which that rate 
is affected. 

1. Whenever the rate of interest is raised by increase of 
risk, this is an indication of adversity. Rise of interest 

rom such a source benefits no one. It is of no service t(? 

he lender, because he derives no profit from that part ol 
tlie premium which insures him against loss. It is as prof- 
itable for him to loan for five per cent without risk, as to 
loan for ten per cent, when five per cent is for risk, and 
five per cent for use. It is an injury to the lorroiDer, 
because one hundred dollars are worth no more to him 
when he pays five per cent for risk, than wlien he 
pays nothing for it. Whatever therefore, is paid for risk, 
is always a loss to both parties, and the more there ia 
thus paid, the worse it is for both. Hence, the rise of in- 
terest caused by bad government, civil commotion, revo- 
hitions, wars and general immorality, is always an indica- 
tion of national decline, and the fall of interest produced 
by the contrary causes, is an indication of national pros- 
perity. 

2. On the other hand the temporary rise of interest 
caused by increased productiveness and tlie development of 
new national resources, is an indication of national pros- 
perity. It shows that more than ordinary valuable modes 
of employing capital have been discovered, and that men 
can afford to pay a larger price for the use of capital. 
This is however a temporary rise, because a rise from such 
a cause will soon equalize itself. Increased productiveness 
trill soon supply capital, or it will be imported from less 
favored countries. Thus, in new countries the rate of in- 
terest is liigh, but this is by no m.eans an indication of ad- 
versity, for such countries, while paying so high a rate foi 
capital, yet grow rich faster than those from which the^ 
oorrow. 

%, The gradual fall of the rate of interest caused b} 



230 DISTRIBUnOlS'. 

the diminutitn of rish, and the greater abundance of 'Oapi« 
tal, is an evidence of prosperity. Ifc shows that a larsjei 
proportion of the means of subsistence is falling to the 
share of every individual ; that every man can more easily 
procure capital ; and that every man in order to support 
himself, produces a larger amount than formerly, of what- 
ever will contiibute to the comfort and convenience of hia 
neighbor. 

4. On the other hand, the fall of the rate of interest, 
caused by a sii^spension of the means of production, is an 
evidence of national adversity. Suppose a war to occur 
between this country and France. The capital now em- 
ployed in transportation, must be almost wholly unproduc- 
tive. The capital employed in producing our exports to 
that country, must also be useless. Hence, the rate of 
^interest would fall ; for many men would have no business 
in which to employ their capital. The case would be the 
same, were a fall in the price of capital to proceed from 
civil commotion, or any similar cause. And the adversity 
would remain until the cause were removed. For if capi- 
tal were removed out of the country until, from reduction 
.n the supply, the rate of interest rose, the industry of the 
country would still be depressed, until, by peace, order and 
good government, it regained its natural advantages. In 
case of war, the production of articles used in war is greatly 
stimulated, and business generally is for a time quickened 
to unwonted activity. But soon after peace is restored, 
there comes a reaction when the normal and adverse effect 
of the disturbance appears. 

Hence, we see that in order to form any correct opin 
ion respecting the condition of the country from the pres- 
ent rate of interest, we must always seek for the causes of 
that rate, instead of deciding from the mere rate itself. 

Usury Laws. — In former times, when money \fai 



USUKY LAWS. 231 

borrowed chiefly to be spent in immediate consumption, 
t'j take interest seemed to imply taking advantage of men's 
necessities, and the business of money-lending came into 
bad repute. The ban of society was upon tliose who en- 
gaged in it, and thoy were driven to demand exorbitant 
rates as an offset to the odium under which they lived. 
This prompted the enactment of laws to restrict and regu- 
late interest, which were commonly called usury-laws. 

The old Roman laws against insolvent debtors were ex- 
tremely severe. To escape their penalty, men consented 
to pay what the lenders were disposed to exact, exorbitant 
interest. There was therefore a kind of necessity that the 
borrower should be protected by laws limiting the rate of 
interest that might be demanded. 

In the middle ages, restriction rather than freedom was 
the rule in all departments and in all relations of productive 
industry. Interest therefore, like everything else, was 
subjected to limitation by law. 

At the present day, the necessary cooperation of labor 
and capital in the development of trade, is better understood. 
The advantage to borrower as well as lender, of loans made 
to be employed in active, profi table business is also appar- 
ent to all, yet the old prejudice still lingers and perpetuates 
in the statute-books of most states, usury-laws. The spe- 
cific object of such laws is to define a certain rate as the 
highest rate of interest permissible. Such laws are in 
direct conflict with the first principles of sound political 
economy, as several considerations clearly show. 

1, They violate the rigid of property. A man has the 
«ame right to the market price of his capital in money, aa 
he has to the market price of his house, his horse, his ship, 
or any other of his possessions. 

2. The real price of capital cannot le fixed hy latv, any 
more than the real price of flour, or iron, or any othei 
commodity. There is, therefore, no more reason for as« 



232 DISTKIBUTIG:sr. 

signing to it a fixed value, tlian there is for assigning i 
fixed value to any other commodity. 

3. The price of capital or money is really more varidbU 
than that of any other commodity. Most other commodi- 
ties ha?re but one source of variation, namely, use ov profit. 
But capital in the form of money is liable to two source? 
of variation, risJc and use. These vary at different times, 
in different investments, and with different individuals^ 
There is, therefore, less reason why the price of money 
should be fixed by law, than why the price of anything 
else should be so fixed. 

4. These laivs, instead of preventing, give rise to greai 
and disastrous fluctuations i7i the price of money. 

Suppose that to-day, money is worth in the ordinary 
operations of business, ten per cent, and it is worth six per 
3ent in loan. A man will as soon loan as employ it in 
business, if he possesses more than he wishes to use. 
There will then be a fair supply of money in the market. 
But let the profits of capital rise, so that, in the ordinary 
operations of business, capital is worth twenty per cent. 
11 now the rate of interest rose with this increased rate ol 
profit, the same individuals would be as willing to loan as 
before, and thus, the supply following the demand, there 
would arise no peculiar scarcity. The high rate of inter- 
est would also attract capital from abroad, and thus in a 
very short time, it would in this particular place, bo 
brought to the general level. 

But suppose that six per cent were the highsst legal 
rate of interest, and that he who loaned at a higher rate, 
was liable to lose both his principal and interest, and also 
his mercantile character. In this case, as soon as the 
profit of capital in business rose to fifteen or twenty pei 
cent, no one who could thus employ it, would loan it at 
BIX per cent. Hence, the supply would be immediately 
diminished ; and this would of course, cause a greater rke 



USUBT LAWS. 233 

of interest. Those who from honor or conscience obeyed 
the laws, would withdraw from the market, and employ 
their capital in some other way, and no one would loan 
but those who were willing to risk the consequences ol 
detection. These, haying the money market in their own 
hands, will of course charge for the use and for the risk ol 
letection, and hence, the price in a few days may become 
doubled or trebled. At the same time, although the real 
value of money may be fifteen or twenty per cent, yet be- 
cause the legal price is six per cent, there is no inducement 
for capital to come in from abroad, to supply the demand. 
Hence, the change in the money market has, by reason ox 
this law, no tendency whatever to regulate itself. 

5. Such laws can never le enforced. Men in want of 
money will pay what they please for it, and those who 
choose to pay enough for it can generally borrow. The 
effect then of the usury laws is merely to drive the best and 
most conscientious lenders out of the market, or else oblige 
them to lend by means of subordinate and less scrupulous 
agents. For this agency the borrower must pay, and hence 
ihe additional rate of interest. To this it is objected that 
money is not like other things, inasmuch as it is a neces- 
sary of life to the merchant, and therefore society must 
step in to deliver him from the effects of extortion. We 
may answer : 

1. It is manifest that this interference does not render 
the merchant's condition the better, but rather the worse. 
Though the assistance, therefore, be well intended, he may 
Tsry well dispense with it. 

2. The greater the necessity for money, the more 
urgent is the necessity of leaving it undisturbed by legisla- 
tive interference. It makes small difference to the com- 
munity whether the price of jewelry be fixed by law or not. 
But suppose that when flour would bring ten dollars a 
barrel, the government forbade it to be sold for m are thaa 



S34 DlSTKIBUTIOir. 

seven dollars. "Who does not see that the floui would b« 
all driven away and the people starved ? The same prin- 
ciple applies to the rate of interest. In all active commer- 
cial centres, this is now understood and acknowledged. 
The old prejudice is most cherished among the fa'rmers. 

Every state should have a simple enactment of law ae- 
fining a legal rate of interest applicable to cases where the 
contract indicates no specific rate, or where, without formal 
contract, a debt has been incurred and interest is due. 
Such a law tends to prevent disputes and is of advantage 
to both parties. Legislation which attempts to go beyond 
this is wrong and mischievous. 

Usury-laws offer a premium for the defiance of law, and 
confer a monopoly on uu scrupulous extortioners. The 
reasons urged for their enactment apply to all other 
things with equal force, and would require the prices o{ 
all commodities to be arbitrarily fixed by law, and this 
would be as absurd as to try by legislation to regulate the 
tides of the ocean. Legal sanction and security for all 
reasonable contracts in loaning capital, encourage free 
competition and constitute the surest safeguard against 
excessive interest. The abrogation of usury-laws in Great 
Britain and in Massachusetts and other American states, 
may be welcomed as first steps in a reform, destined, y/8 
hope, soon to be universal. 

Dividends. TJds term is used to denote tlie remnn^ 
ration of capital invested in Stock-companies. Tliis form 
of compensation for the use of capital is marked by some 
peculiarities which deserve a special notice. 

Stock-cumpanies are designed to unite contributions o* 
c&pital from a number of persons, for business operationa 
on a scale too large for the means of an individual capital- 
iat. Such organizations are formed chiefly for manufac- 
turing in large establishments, for banking, for insurance. 



DIVIDENDS. 23£ 

for the construction and management of railways, canals, 
and the telegraph, for express transportation, for working 
mines and for extended navigation. In formJDg a company, 
the enterprise is projected, an estimate is made of the 
Amount of capital required, and this is divided into equal por- 
tions called shares, which are offered more or less freely to 
che public. Most commonly the shares are one hundred 
dollars each. Whoever purchases one or more shares 
receives for his money a certificate of ownership which 
constitutes him a member of the company, entitled to a 
vote in the election of directors and to a participation in 
the proceeds of the business, in proportion to the number 
of shares standing in his name. These shares are trans- 
ferable under certain regulations of each company and can 
be sold, like any other property, at their market-value 
The owner for the time being is the stock-holder and rec 
ognized member of the company. Ordinarily, a board of 
directors is annually elected by the stock-holders, and the 
oversight of the business is entrusted to them. They ap- 
point a manager and other salaried officers, who attend to 
details and are accountable to the directors. 

Quarterly or semi-annually, the accounts are balanced, 
an inventory is made and the profits of the business, after 
providing for all expenses, are ascertained. On the basis 
of that showing, dividends are declared, setting down a cer- 
tain percentage to each share of the stock. In all well- 
managed companies, before the declaration of dividends, 
there is set aside from the profits a small reserve to meet 
emergencies. This reserve accumulates from year to year, 
adding steadily to the real vahie of the stock. Sometimes 
this reeerve or a portion of it, is divided among the stock- 
holders by an extra cash dividend. Sometj-^^es it is ap- 
propriated to the purchase of new builtungs and new 
machinery for the expansion of the business. In this case, 
these outlays are regarded as increasing the capital and 9 



S36 DISTK1BUTI0K-. ' 

iiocJc-dividend is made, that is, eacli share-holder receivei 
an addition to his stock proportioned to the number of hie 
ehares. Thenceforward, the profits are divided pro rata, 
to the whole amount of stock thus increased. 

For illustration of the whole matter, suppose A. B. took 
fifty shares of the stock of the Pacific Mills Manufacturing 
Company, on which he has received returns for ten years 
These shares represented five thousand dollars of capital 
originally invested in this way. Regular semi-annual cash 
dividends of five per cent, that is ten per cent per annum, 
have been made. Three years after the company was 
formed, a stock-dividend of twenty per cent was declared, 
and three years later another stock-dividend of the same 
amount was made. The company has still a considerable 
reserve in which every stock- holder has an interest. In 
view of this reserve, the large profits, and the high char- 
acter of the managers, this stock when offered for sale, 
commands a premium of forty per cent, that is, for 
every share of stock rated at one hundred dollars, purchas- 
ers are willing to pay one hundred and forty dollars. On 
these suppositions, A. B.'s remuneration for his capital for 
ten years will stand thus : 

Cash dividend on $5,000 at ten per cent for ten years $5,000 

" " " 1,000 " " " eeven " 700 

" " " 1,200 " " " four " 480 

First stock-dividend, 20 per cent on original stock 1,000 

Second " " 20 per cent " increased" 1,200 

Premium of present market value, 40 per cent on $7,200 2,880 

Total $11,200 

This is equal to an average of nearly twenty- three pei 
csent for the whole period. All of this may be set down aa 
earned by the original capital thus invested. Meantime 
the ordinary rate of interest in New England where the 
mill is situated, has been not more than seven per cent 
Simple interest on the original five thousand for ten years, 



would have amounted to three thousand five hundred. 
The difference between this amount and the sum gi\en 
above is seven thousand seven hundred and sixty, which ia 
therefore profits, the surplus over the ordinary remunera- 
tion of capital. 

We have thus brought to view the chief peculiarity o 
this form of returns for capital. Properly considered. 
Dividends include two elements, interest and profits. If 
instead of buying stock, A. B. had loaned his money to 
the manufacturing company, he would have received only 
interest. But as an owner of stock, he becomes a direct 
partner in the business, entitled to a share in the profits, 
liable also to share in its losses. The case we have sup- 
posed is a favorable one, yet by no means extraordinary 
It must be remembered however, that many investmenta 
of this kind yield no dividends, or such as amount to less 
than ordinary interest. In some cases, the capital is lost 
entirely ; and in certain corporations, such as our national 
banks, each stock-holder is by law, made liable not only to 
lose his stock, but to pay an additional amount equal to 
that of his stock, if necessary, toward liquidating the debts 
of the company. There are besides, continual fluctuations 
in the market-value of many stocks, caused by gambling 
operations of brokers and adventurous speculators, — the 
bulls and bears of Wall Street. Often, as seen in some 
railway companies, the managers sacrifice the interests of 
the corporation, for the sake of making a fortune for 
theinselves through fluctuations in the price of stocks, 
caus.3d by their own action, and of which they know best 
how to take advantage. In other instances, as appears ip 
some insurance companies, the oflicers and managers, hold- 
ng a majority of the shares, vote to themselves salaries 
which use up a large portion of the profits. Frequent 
frauds and defalcations also appear, through abuse of trusts 
in managing business with funds belonging to a common 



S38 DIBTRIBUTIOK". 

stock. Men of highest character for integrity, hare fdWeix 
under the delusive snares, the temptations, subtle and 
strong, which beset these positions. And by wild and 
utterly baseless schemes of fradulent organizations, many 
simple oaes are induced to embark their carefully saved 
»-apitaI on an open sea, in paper boats, through which it 
soon sinks to the bottom never to be recovered. Ca])ital 
invested in this form, is subject more or less to these risks. 
The interests of the small stock-holder are in other hands 
than his own, subject often to the will of men of cold mer- 
ciless selfishness. A careful estimate of the results of such 
investments, would probably show average returns much 
less than ordinary interest. Yet, shrewd foresight in the 
careful selection of stocks may secure a tolerable certainty 
of dividends, which will yield, besides ordinary interest, a 
considerable profit. The danger is always that, under an 
Jlusion of the imagination excited by occasional singulai 
examples of success in these operations, the risks will be 
overlooked, sanguine expectations will be raised, and men 
Till find too late, to their loss and grief, how treacherous 
are the seas to which capital in such investments is 



CHAPTER XVII. 

DISTPJBUTION OF PROFITS. 

Profit is a tei'm popularly used in a broad sense, t<3 
denote any benefit proceeding from any kind of exertion, 
as we speak of tbe profit of study, of physical exercise, of 
social intercourse, etc. As a technical term of political 
economy representing the proceeds of industry, it is em- 
ployed with too much looseness and ambiguity. Most 
writers define profits to be " the remuneration paid for the 
use of capital,^'* making the term include interest and 
something more. At the same time, they say that in esti- 
mating the cost of any product, interest at the current 
rate on the capital employed, should be reckoned in. Thus 
gross proceeds are confused with net proceeds under the 
game term. Mr. J. Stuart Mill says, " The three parts 
:nto which profit may be considered as resolving itself, may 
be described respectively as interest, insurance and wagek 
of superintende7ice.^' Mr. Amasa Walker makes the mat- 
ter more definite at least, by representing profits as the 
share which falls to the employer or manager, or to use 
the convenient French term " V entrepreneur,''' who effects 
a union between capital and labor and directs their active 
cooperation. This loose and varied use of an important 
term is certainly not scientific. 

It s€ems clearer and better to hold this word p''vfil!i 
strictly to mean the net proceeds, the surplus after the neces- 
sary expenses of business have been deducted. A consistent 
presentation of our science requires just this term and pre- 



240 DISTKIBUTION. 

scribes fox it this specific meaning. "We have seen that the 
main faclors in the productioji of wealth are labor jmd 
capital. We have seen that various kinds of labor are 
necessary, as simple labor, skilled labor, and labor of over- 
sight, superintendence and general management. We 
bave seen also that these different kinds of labor are com- 
pensated by different methods and at different rates. 
Those engaged in direct, operative labor constitute the 
great majority of laborers and receive their remuneration 
in tuages J those who have the responsible charge of over- 
sight and management are compensated by sala7'ies, fixed 
according to the estimated importance of their service ; 
and the proper remuneration of capital is interest. All 
these outlays are to be reckoned as expeiises, and with 
them are to be included the two other items, insurance, or 
what is paid to guard against certain risks, and taxes paid 
for protection by the government. Now, if the products 
of an industrial establishment, after keeping the capital 
good, provide for these expenses and nothing more, the 
business is just sustaining itself, but it yields no profits. 
In that case, since all parties get their legitimate compen- 
Bation, they may be satisfied to run on so for years. 
Whatever is realized beyond this, is profit. If the pro- 
ceeds come short of providing for these expenses, some of 
the parties must suff'er loss. 

When the proceeds just cover the expenses named, 
while the business as a whole yields no profit, each of the 
several parties concerned may be earning for himself an 
individual profit. The laborer, out of his wages at forty 
dollars per month, may support himself on thirty-five, and 
have for the year a profit of Sixty dollars, deposited in the 
Bavings-bank. The foreman from his salary of one thou- 
sand dollars per year, may lay away in like manner, two 
hundred as his profit. The manager, with his salary of 
ten thousand dollars a year, may, if he chooses, spend al] 



PH0FIT8. 241 

in luxurious living, or oy a little self-denial, he may add 
one half the amount, his profit, to his accumulating wealth. 
And the capitalist receiving seven per cent on his fifty 
thousand invested, may turn a portion, more or less, of 
ihis interest to increase his capital and reckon so much as 
nis profit. In this view of the matter, each individual ia 
regarded with reference to the personal end for which he 
employs his labor or his means, that is, to secure a living, 
and if possible, a surplus beyond. This use of the term ia 
not at variance with our technical definition. But in our 
science, the word is more especially employed in its broader 
application to the proceeds of industry in which capita, 
and labor are united. 

The principle is the same lohen one comMnes in himself 
the functions of operative, manager arid capitalist ; only in 
such a case, wages, salary, interest and profits if there be 
tny, all come to him. Even then, the profits of his busi 
ness can be distinctly defined, only by setting down a por- 
tion of the gross proceeds as wages for his labor, another 
Dortion as reward for management, another as interest for 
fiis capital and something for taxes and insurance. The 
net proceeds, after deductiDg these, would be the profits 
of his business, and in this surplus, if anywhere, he will 
find the main advantage of conducting an independent 
business, instead of loaning his capital and engaging his 
labor and skill in the service of others. 

This rule is especially to be applied in all the complica- 
ted arrangements of productive industry, where different 
j)arties representing different interests are united. In all 
these combinations, the great aim is to mahe a prof t and t<i 
make it as large as possible. It is evident that profits can 
be legitimately increased only by reducing expenses, or by 
increasing the amount and the value of the products. The 
amount of profits will be varied by whatever affects favora- 
bly or unfavorably either the efficiency and fruitfulness oi 
11 



243 DISTKIBUTIOK. 

the industry, or tlie expense of carrying it on. Hence, tlie 
importance of wise and faithful management. This is th« 
most important service and deserves the highest compensa- 
tion. But this fact does not warrant the appropriation oi 
the entire profits to " the entre|)reneur." 

In this connection, another common error must ba 
noticed. It is that of expressing the measure of profits in 
a hiisiness, ly a percentage o?i the capital i?iveste(L If the 
profits belong exclusively to the capital, there may be some 
propriety in this usage. But at best, it is an indefinite, 
almost unmeaning way of stating the matter. In many 
cases, the labor is of more account than the capital. A 
laborer may, as we have seen, gain a profit from his indus- 
try without any capital of his own. A shoemaker witli a 
capital of five hundred dollars, may by untiring industry, 
make his proceeds count a hundred per cent on that 
amount and yet receive no sufificient return for his labor 
his business yields no profits at all. A return of twenty 
per cent on five hundred thousand dollars, invested in a 
Dusiness done on a large scale, may furnish ample remune- 
Tation for labor and management, with a large margin for 
profits. Hence, often, a man will find it for his advantage 
to work for wages or a salary in connection with a large 
establishment, rather than to attempt an independent busi- 
ness. So with truth is it said, "It is in the nature of 
trade and manufacture that great capital drives squall capi' 
tal out of the field ; it can work for smaller returns." 

With this understanding of the nature of profits and 
the manifest facts that industry is carried on with a view 
to profits, and that successful business actually yields prof- 
its, we come to the question, Hoii^ the profits are to he dis- 
irilutcd. Most writers, from Adam Smith to J. S. Mill, 
have treated profits as the remuneration of capital, and 
therefore to be assigned wholly t^ the owners of capital 



CAPITAL MAY l^^OT CLAIM ALL THE PHOFITS. 243 

When tlie owner of the capital, or a large portion of it, is 
also manager of the business, the power is in his hands, 
and generally he will use it for his own advantage. This 
is most frequently the case, and hence, as a matter of fact, 
the capitalists do quite commonly get the whole benefit of 
the profits. But our common sense of right cannot be 
satisfied with such a distribution. The usage may be tol- 
erated, but the calm sober judgment of men pronounces it 
not equitable. There is in it an element of tyranny which 
laborers feel and groan under and complain of, not with- 
out reason. Take an illustration from agricultural industry 
in England, where capital, in the form of land, is made 
by law, a monjpoly, enjoyed by few. The case comes 
before us stated hypothetically, but it finds many a coun- 
terpart in fact. Lord Dundreary, sole proprietor of ten 
thousand acres, rents his lands to forty tenant-farmers, each 
having two hundred and fifty acres, at thirty dollars per 
acre. These farmers, furnishing skill, executive ability 
and some capital in the form of tools, live-stock, etc., 
make half as much per acre as the rent they pay. They 
employ four hundred laborers — ten for each farm, on 
wages at about four dollars per week. Then we have the 
following footing : 

One capitalist receives in rent $300,000 

Forty farmers get for their returns ($3,750 each) 150,000 

Pour hundred laborers receive in wages ($200 each per year)... 80,000 

Total proceeds of the estate $530,000 

Four hundred and forty-one men, representing 
probably as many families, are drawing on the pro- 
ducts of the ten thousand acres. A single one, my lord, 
the chief capitalist, takes for himself more than half 
the entire proceeds, absorbing all the profits. Forty 
farmers receive a fair compensation for their capital, skill 
and care in managing the business. Four hundred labor- 
ers, reduced to the lowest state of penury and degradation, 



844 DISTRIBUTION. 

hardlj keep soul and body together. In view of such 
facts, we do not wonder that an intelligent farm-laborer, 
Josepli Arch, should rise in his place and move for some 
radical reform and relief ; or, if we may credit the news- 
paper report of his speech, that Mr. Gladstone (Sliould say 
of the British land-laws, "I am in favor of rath.-r bold and 
important, if not sweeping change. Greater freedom 
ought to be established, and I think that not merely eco- 
nomical but social mischief results from the present system. 
Therefore, I am prepared to entertain on that subject, a 
great change." 

In our country, since slavery ceased, so extrenie wrong 
could not probably exist in the department of agricultura 
industry, nor perhaps in any other branch of business. 
But the principle that profits are the reward of capital^ 
exclusively, involves such a wrong in greater or loss degree. 
Probably, the detailed statement of the disposition actually 
made of the proceeds of many of our large manufacturiLg 
establishments arid railway operations, would reveal like 
inequalities, against which the common mind instinctively 
protests. It is urged on the other side, that while capital, 
by having all the profits may receive more than its share 
one year, yet the very next year or for a series of years, it 
may receive no reward at all ; that all the labor is first paid 
for, before capital receives any of its pay ; and that in times 
of depression, while labor may be forced to take less pay, 
capital may get nothing and yet it can not be withdrawn. 
All this is true ; and because capital thus takes the chief 
buiden of risk, it may justly claim a proportionately largef 
hare of the profits. But equity and good feeling and the 
oest interests of all concerned will be promoted by holding 
to the distinction we contend for and recognizing labor as 
also a rightful partner to some extent, in both the risks 
and the profits. 

The rule which assigns the entire profits to the ma?mger 



CO-OPERATIVE ASSOCIATION'S. 243 

or employer, seems no less objectionable. The importance 
of his judgment, tact and energy to the success of the busi 
ncss is obvious, and it is readily admitted that his remune- 
ration is rightfully made larger than allowed to any other 
01 the parties, and that its amount may probably be made 
to d8])end on the actual profits. This consideration, how- 
ever, hardly justifies the appropriation of all the profits to 
his benefit. The laborers and the capitalists between 
vfhom he stands, the middle-man, agent of both, may justly 
claim a share. 

Cooperative Associations aim to secure a more equitable 
distribution of profits. In these associations, a number of 
working-men of a particular branch of industry join their 
means and their hands to carry on business for them- 
selves, expecting to divide the entire proceeds among 
themselves by some defined rule of equity. Some such 
organizations have been, for a time, partially successful, 
but they are pretty sure to end in failure at last. The 
reasons are obvious. It is not easy to rule out jealousies 
...nd harmonize the views of such ■. company. A greater 
obstacle to success is found in the lacTc of capital and man- 
aging ability, two essentials for the continued life and 
prosperity of any enterprise amid the sharp competitiona 
of the business-world. A military campaign cannot be 
successfully conducted by the direction of a majority vote 
in mass meeting. It must have an able leader, trained to 
command. So, in business, especially where numbers are 
to be engaged together, '* a Captain of Inditstry " is all 
osseriuaL Such a man, not every a?ssociation of a hundred 
artisans however skilled and efiBcient, can furnish. Mr. 
F. A. Walker says that the sole object of this form of .or- 
ganized cooperation is to get rid of •'* the entrepeneur," and 
divide his proper remuneration. This means only that the 
laborers are trying to appropriate all the profits to them- 



M6 DISTRIBUTIOlNr. 

Belves, which involves essentially the same mistake as ap. 

peared in the other cases. 

Foj' a fair distrilution of Profits, there must be a full 
recognition of that Partncrsliip which onr science present! 
as an elementary principle of productive industry. Re- 
solving this partnership by functions, there are three mem 
bers, the Capital, the Executive capacity, and the Laoor 
Each is entitled to a share in the fruits of their coopera 
tion. We may not say an equal share ; because, in every 
case, as we have seen, capital takes the greater risk and ia 
liable to the heaviest losses, and it is fair that this chance 
of greater loss should be balanced by a chance of greater gain. 
So, too, in every case, the amount of profits is due most ot 
all to the executive wisdom and energy of the manager, 
and he is entitled to a proportionately larger share in the 
returns. After due allowance for these, however, there is 
a share which justly belongs to the labor, and should be 
distributed among those w4io make up thi3 third member 
of the firm, according to each one's merit and grade in the 
service rendered. 

It is a hopeful sign that public attention is now turning 
earnestly to consider plans for admitting workmen to a 
participation in the profits of manufactures. Some inter- 
esting and successful experiments have been tried. We 
adduce in illustration of the method, the case of the 
Messrs. Brewsters, carriage manufacturers of Ne'w York 

** The firm offered to divide ten per cent of their net profits 
Eiiiong their employes, in proportion to the wages severally earned 
by them, no charge to be made by the members of the firm for 
their services, prior to the deduction of ten per cent, or for inter 
est on the capital invested ; the business of each year to stand by 
itself and be independent of that of any other year. For some time, 
the plan worked to the satisfaction of all parties, as high af 
eleven thousand dollars a year being divided among the hands. 
The scheme was broken up only when, through strong pressurt 



-WORKMEN PARTl^EES IN PROFITS. 247 

frohi LAitside and the general excitement of the hour, the workmec 
were carried into the great strike of the trades in New Y 3rk. " 

There are obstacles in the way of tlie immediate, gen- 
eral adoption of this measure. False ideas on the part ol 
both workmen and their employers must be corrected, 
mutual confidence must be established and common usage 
must be changed ; things which cannot be accomplished 
in a day. Yet what has been done fully justifies the state- 
ments of Mr. F. A. Walker. 

*' That something of the sort is practicable, with the exercise 
of no more of patience, pains and mutual good faith than it ia 
reasonable to expect of many employers and many bodies of work- 
men, I am greatly disposed to believe. Many experiments and 
l)robably much disappointment and some failures will be required 
to develop the possibilities of this scheme and determine its best 
working shape, yet in the end, I see no reason to doubt that such 
a relation will be introduced extensively, with the most beneficial 
'esults." 

Success in these movements will involve as both cause 
and effect, a better understanding of the mutual relations 
of the parties and of the nature of profits on the part of 
capitalists and managers, broader views of individual inter- 
ests as inwoven with the common interests, and on the 
part of workmen, more intelligence, more thrift, and con- 
eequontly more of genuine manhood. Abiding relief for 
the unnatural and ruinous antagonism of labor and capital 
and a satisfactory solution of the hard problem of economi- 
cal science respecting the practical relations of these two 
factors in production, are to be found in the adoption oi 
measures which aim to establish an equitable distribution 
of profits. 



CHAPTER XVIII. 

REVENUES OF THE GOVERNMENT. 

A Problem of Political Economy. — The prospei- 
ous industry through which men acquire wealth and tht 
well-ordered condition of society by which men are made 
secure in the possession and enjoyment of wealth, depend 
on good government, eflSciently administered. Every indi- 
vidual of the state has therefore an interest with regard to 
his own well-being in the maintenance of government. Aa 
a compensation for the service rendered him, he may then 
properly be called on to contribute a portion of his wealth 
for its support. These considerations bring this topic 
necessarily within the scope of our science ; and it comes 
under this division which treats of Distribution, because 
the public revenues must obviously be drawn from the pro- 
ceeds of a people's industry. Furthermore, since the gov- 
ernment represents a common public interest superior to 
any private interest, its claim very properly takes precedence 
of all others ; in a sense, it has a first lien on the entire 
wealth of the nation. 

Taxation is the means employed to gather from a 
people the revenues of its government. To devise and 
apply an equitable system of taxation is one of the pro- 
foundest problems of legislation. It is a problem which 
the true statesman will study in the light of political econ- 
omy. In studying the problem, taxation should be regarded 
with respect simply to its one object, t*z., the raising of a 



TAXATI02S. 249 

revenue for the state In despotic governments, the will 
of the ruler determines arbitrarily hotli the methods and 
the measure of taxation. The people's wealth is conse- 
quently exposoi to the unrestricted plunder of an army of 
tax-gatherers, and great inequality and oppression prevail. 
It is a fundamental principle of free and just government 
that taxes shall be iinposed hy representatives of the peoph 
alone, through proportional and reasonable assessments on 
all estates ; and that they shall be collected by uniform and 
responsible agencies acting under defined powers and direct 
accountability. The one thing to be aimed at is to make 
the burdens laid on the people as light and equable as pos- 
sible consistently with providing means ample for the 
support of the government. For this, two things are 
essential, first, fair and impartial assessments, and second, 
efficient and economical collection. A perfect result has 
never yet been attained, for human selfishness opposes 
many subtle and great obstacles ; but much is gained by 
steady contemplation of the philosophical ideal. 

Adam Smith's Maxims. — This father of modern 
political economy laid down four rules of equitable taxa- 
tion, as follows : 

1. ** The subjects of every state ought to contribute ioiuard 
the support of the government , as nearly as possible, in 
proportion to their respective abilities; that is, in p)ropor- 
Hon to the revenue which they respectively enjoy under the 
proi lotion of the state. 

2. The tax tvhich each i7idividual is bound to pay ought 
to be certain and not arbitrary. The time of payment, tht 
^n^nner of payment, the quantity to be paid ought all to be 
clear and plain to the contributor and to every other person. 

3. Every tax ought to be levied at the time and in tht 
manner in which it is most likely to be convenient for ihs 
contributor to pay it. 

11* 



860 DISTRIBUTIOS". 

4. Every tax ought to he so cant? ived as 'both to take oui 
and to keep out of the pockets of the people as little as possi- 
lie over and above what it brings into the public treasury 
of the state. " 

It may be questioned whether it is true, as seems to be 
impllDd in the first maxim, that the xfcilitxe of dinercisit 
|>ersons are measured in due proportion by their respective 
revenues or incomes. It is obvious that the ability of one 
whose annual income is five hundred dollars, and that ol 
another whose income is fifty thousand dollars, to pay a 
tax of two per cent on their respective revenues, are not 
equal. Hence, the need of some further discrimination in 
estimating abilities. With this exception, these maxims 
2>f Mr. Smith are believed to embody principles of equity. 
They have met with general approval, as furnishing a tes^ 
50 which various schemes of taxation may be referred. 

Direct and Indirect Taxation. — These terms are 
defined by Mr. Mill thus : " A direct tax is one which is 
demanded from the very persons who, it is intended or de 
sired should pay it. Indirect taxes are those which are 
demanded from one person, in the expectation and inten- 
tion that he shall indemnify himself at the expense Ox 
another." A poll-tax, a tax on land, live-stock, tools, 
goods, etc., and strictly speaking, an income tax, are 
examples of direct taxes. Duties laid on imported goods 
and excises on articles of home-manufacture are exam- 
ples of indirect taxation ; the importer or manufacturer 
who pays the tax, adding the amount of the tax to the 
price of the goods, to be ultimately paid by the consumers. 
Direct taxation, with fair assessments and honest returns 
of property and income, may be most fully conformed to 
the equitable principles embodied in the maxims Just 
stated. But if applied to all kinds of property, it involves 
mnch labor and expense in collection, and is apt to prompt 



DIRECT AKD IIS^DIRECT TAXATION. 251 

concealment and evasion and to provoke dissatisfaction 
and complaint on the part of tax-payers, because they 
know precisely when and how much they have to pay and 
feel the full force of the burden. Indirect taxes, on the 
^ther hand, are more cheerfully submitted to and more 
easily collected, because laid on the goods at the port of 
entry or at the manufactory, and so distributed in small 
quotas through the increased prices, that no one thinks of 
the tax he pays, when he makes his purchases. But this 
method violates nearly all of Mr. Smith's maxims. Under 
it, the burden is imposed very unequally, each one's pro- 
portion being determined not at all by his ability but by 
his necessities. Often a poor man, with a large family to 
provide for, actually contributes more for the support of 
the government, than his neighbor with ten times his 
wealth and ability. It is only a partial relief to this in 
equality which is gained by a discrimination that layg 
heavier duties and excises on luxuries than on the neces- 
saries of life ; for the proportion which each beai's of the 
burden is still determined not by his ability, but by what 
he consumes. Hence, direct taxes if equally imposed, are 
commonly more just ; that is, they derive the support of 
government from individuals more in proportion to their 
respective abilities, and to the degree of benefit which each 
derives from the government. 

In favor of direct taxation, it may also be added that 
it is decidedly more in harmony with the genius of a 
republican or representative government. Such a govern- 
ment proceeds upon the principle that the people are the 
f curtain of power, and are competent to govern them- 
selves. Now, such a government ought not surely to act 
np«n the directly opposite principle, that the people may 
not knoio what they pay, or when or how they pay. They 
are the party from which especially, nothing of this sort 
should be concealed. They should know what and how 



253 DISTBIBUnON. 

much they contribute ; and also in wLat manner whatevei 
they contribute is expended. It is in this knowledge and 
in the judicious use of it, that their safety consists. 
Therefore the consideration so frequently urged in favoi 
of indirect taxation, that the people do not feel it, is one 
si the strongest arguments against it. The more a people 
feel taxation, and the more jealously they watch over the 
public expenditure, the better it is for them and for theu 
rulers. Yefc, until there is attained a higher standard of 
intelligence, honesty and patriotism than has been reached 
by any people hitherto, governments will still be compelled 
to employ this more convenient and easy method of rais- 
ing tlieir revenues. 

In most countries it is now adopted as a rule of indi- 
rect taxation that tJiose commodities, such as intoxicating 
liquors, the consumption of lohich is regarded as injurious, 
shall ie most heavily taxed. Experience has shown that 
the consumption of such articles is not materially dimin- 
ished by the tax. As a check on immorality, the measure 
.s therefore of little avail ; but as a source of revenue, it 
*s found to yield large results. The greater part of the 
revenue of the British government from customs, is de- 
rived from duties on tobacco and intoxicating liquors. 
When however, the duty or excise is so high as to raise 
the price of the article very much above the cost of pro- 
duction, the temptation to smuggling and illicit manu- 
facture is very strong, the expense of maintaining the law 
and collecting the tax is immensely increased, and corrup- 
tion, more or less, on the part of revenue officers is almost 
inevitable. This folly w^as sadly illustrated, when the 
United States government laid a tax of two dollars per 
gallon on distilled spirits which could be manufactured for 
twenty cents a gallon. The revenues from this source, 
instead of being increased, were greatly reduced by thia 
over-taxation, the price of the article in the market wag 



TARIFFS 253 

steadily less than the amount of the tax, and all over the 
country, revenue officers were corrupted, the members of 
** whisky-rings" made enormous gains, under cover of the 
law which they evaded and defied, and the public senti 
ment was generally demoralized. 

Tariffs. — This term signifies strictly the lists of im- 
ported articles which are subject to tax, with the duties 
laid on each. The word is quite commonly used to em- 
brace also the legislative action on the subject. Protective 
tariffs so-called, designed to encourage certain kinds of 
home manufactures will be considered in another place. 
The topic is here to be noticed only as a revenue measure^ 
one form of indirect taxation. The duties on all articles 
mcluded in the tariff are paid by the importer, at the port 
of entry, before he can take possession of his goods. 

Duties are imposed in two forms, specific and ad-valorem. 
Specific duties are certain sums charged on articles, hy the 
piece, the pou7id, the yard, the gallon, etc., without refer- 
ence to the value. Ad-valor em duties are indicated by a 
defined percentage of the value of each class of goods, as 
named in the importer's invoice. Each of these forms has 
its advantage and its difficulties. Specific duties are sim- 
ple and clear. The collector needs to know only the 
quantity of the goods, and easily reckons the duty to be 
paid. But the tax in this case is very unequal. Suppose 
the duty laid on tea to be ten cents per pound. The tea 
which the poor consume, costs thirty cents a pound ; the 
better quality used by the rich costs a dollar or more. 
This involves a tax in the one case, of thirty-three and 
one-third per cent, and in the other of only ten per cent. 
Ad- valorem duties lay the taxes more equally, but involve 
more difficulty in the collection, since the value as well aa 
the quality of the goods must be ascertained. •ILence a 
temptation on the ]:)art of the importer to present a false 



254 DISTRIBUTIOIT 

invoice. To counteract this, the governinent must employ • 
a host of experts to examine and estimate the yaluea oi 
goods. These often come into altercations with tlie im- 
porters, and sometimes refuse to recognize an invoice that 
is honest and true. In American tariffs, sometimes the one 
principle and sometimes the other has prevailed. Some- 
times, as in the tariff now in force, both are combined, 
producing intricate and vexatious complications, and 
greatly enhancing the expense of collections. There can 
be no doubt that on the whole, both for the people and for 
the government, the best tariff is one which lays a specific 
duty, of moderate amount, on a comparatively short list of 
articles, which are not produced at home, and must there* 
fore be imported from abroad. 

American Taxation. — In the United States there 
are two general systems of taxation — that ijistituted 
hy the National government, and that iiistituted iy the 
several State governmeiits. The latter includes all local 
taxes imposed under authority of each state by counties, 
cities, towns and school-districts. The national constitu- 
tion authorizes Congress to impose taxes in every form, 
subject only to the qualification that direct taxes must be 
apportioned to the several states according to their respec- 
tive populations, and that all duties, imposts and excises 
shall be uniform throughout the United States. It ex- 
pressly forbids any state to lay any imposts or duties on 
imports or exports, except for executing its inspection 
laws. In consequence of these constitutional provisions, 
the taxes paid by the national government have been 
hitherto, with only slight exceptions, indirect, while the 
state governments rely almost exclusively on dired taxes. 
The two systems thus combine two methods, in a waj 
which secures the advantages of each, with as little drasT' 
back of disadvantage as is possible. 



NATIONAL TAXATION. 255 

The proceeds of duties 07i imports proved suflQcient to 
meet the needs of the general government, for the most 
part, until the recent war of the Rebellion. To provide 
*or the heavy expenses of that war, and for the consequent 
debt, resort was had to four other forms of taxation, which 
deserve a brief notice. 

a. Excises, These are imposts laid by Congress on cer- 
tain specified articles of domestic manufacture. They are 
collected by the sale of stamps to be affixed by the manufac- 
turer or by an officer of government, before the goods are 
thrown upon the market. The amount of the excise is in 
each case added to the price of the article, and thus the 
tax is paid by consumers. Such a tax must work to the 
disadvantage of home-production, unless corresponding 
duties are imposed on the same articles when imported. 
It involves the inequality which we have seen to be inci 
dent to all indirect taxes. It also involves great expensf 
in collection, since the government must keep agents Id 
every part of the country, watching the manufacturing 
establishments and the markets, to guard against evasion 
of the tax. The number of articles thus taxed was quite 
large at first, but now, liquors and tobacco yield thf» 
greater part of the internal revenue from this source. 

h. Stamps. This is a tax levied by requiring a stamp 
representing a small value, to be attached to various instru- 
ments and forms of business, in order to give them legal 
force. The expense of the postal service is nearly pro- 
vided for by this means, at a very slight charge to the peo- 
ple. This method is also applied to bank-checks, notes, 
deeds, mortgages, contracts, wills, etc. Such a tax touches 
directly the wealth of tlie country in transition, and just 
at the points too, where it needs government protection to 
give it a certain kind of security. It comes upon those 
best able to bear the burden. It accords with Mr. Smith's 
fourth maxim for the cost of collection is very light an<^ 



'<^56 DISTRIBUTION. 

nearly the entire amount taken from the people's pocketi 
goes into the government treasury. When first introduced, 
it seems a little vexations, and it takes time for a people 
to become habituated to it, but once fairly instituted, it is 
hardly felt, and is found an economical and equitable 
mode of distributing the public burdens. Great Britain 
employs it very successfully, raising over fifty millicn.^ 
each year from the sale of stamps, to be thus applied. Tt 
is to be regretted that our government almost entirely 
abandoned this measure, just when it was fairly inaugura- 
ted after the war. 

c. Licenses. This is a form of tax quite akin to that 
last named. It is imposed by requiring men to buy of the 
government, at specified rates, certificates autliorizi7ig tJiem 
to engage in certain kinds of business. It has been em- 
ployed by both the Federal government and by state gov- 
ernments. It is objectionable because it discriminates 
unequally among industrial occupations. It is urged in 
*ts favor that it draws from certain parties, such as ped- 
dlers, insurance companies outside of the state and sonv 
professional men, a just return for the advantage thej 
derive from the protection of the government, which 
return could not be secured in any other way. The prin- 
ciple as applied to occupations regarded as mischievous, 
such as dram-selling, has anotlier aim than to raise a 
revenue, that is, to restrict an evil. In that application, 
it has to do with the morals of society, as much as with its 
economies. 

d. Income tax. This is a form of direct tax, levied by 
imposing a certain percentage upon the annual incomes of 
individual citizens. According to Mr. Mill's definition, 
this is certainly a direct tax ; although the American Con- 
gress when insMtuting it, declared it not a direct tax in 
the sense of the term used in the constitution with respect 
to the apportionment of direct taxes among the statoa. 



INCOME TAX. 257 

Theoretically, this is the most equitable tf all taxes, since 
it touches men exactly according to their abilities. Bui 
as we have seen, if the percentage is uniform for all in- 
comes, it involves an inequality which bears heavily on 
those whose incomes are small. To relieve this, two meas 
ores are em2)loyed. The first is to exempt all incomes 
below a specified amount. The other is to establish two 
or three grades of income, and make the percentage 
greater on the larger incomes. The chief objection to an 
income-tax is the difficulty, almost impossibility of ascer- 
taining men's real incomes ; partly because many keep nc 
accurate accounts, and partly because few, comparatively 
will make truthful report of their incomes. Inquisitorial 
measures to discover actual incomes are exceedingly offen- 
sive. Moreover, as in the case of excises, the labor and 
cost of collecting this tax involves a serious drawback on 
the public treasury. Notwithstanding all this, the British 
government has employed this method of taxation for 
forty-five years, with such success that nearly one- sixth of 
the annual revenue of the kingdom is estimated to come 
from this source. The United States collected an income 
tax for ten years, from 1863 to 1872 inclusive. The lar 
gest amount raised in any one year, by this means, wap 
about sixty-one millions in 1866, from four hundred and 
sixty thousand one hundred and seventy persons assessed. 
Actual experience under the law tended to relieve difficul- 
ties and objections. When most efficiently carried out, 
concealment and dishonesty were not probably greatei 
under this form of tax than are practised continually 
ander the attempts of the states to levy taxes on miscella- 
neous personal property. In both cases the needed relief 
must come from the moral culture which forms good coiP' 
sciences. 

State Taxation. — Under state authority, all ta]^^ 



268 DISTRI3 TTIOSr. 

are direct, laid vci^on. persons by poll-taxes, upon property 
by assessment and upon certain kinds of business by 
iiconses. The poll-tax is ordinarily a small amount levied 
upon every male citizen who has reached his majority. It 
recognizes the protection which the government extends to 
persons as well as to property. It is made in theory, a 
condition of the electoral franchise ; he who pays the tax 
and votes being regarded as the head of a family, in both 
acts, representing a household. It is found difficult and 
expensive to collect this tax from all, and hence the theorj 
<s seldom carried out. Some of the states lay no poll-tax. 

Taxes on property are imposed in all states by essen- 
cially the same method. The state authority, by statute, 
requires the election or appointment of assessors in every 
town and e^ty, who make a valuation of all property which 
the law subjects to taxation. Eeal estate, and articles open 
to their inspection, such as live-stock, vehicles, etc., are 
estimated by the assessors. Other personal property ia 
returned in prepared lists by the owners, who may be 
-equired to make oath to the completeness and truthful- 
ness of their returns. 

In some states, however, the assessor sets down his es- 
timate of each one's personal property, and if the taxpayer 
ihinks the estimate too high, he is permitted " to swear it 
down," as the phrase is, that is, to declare under oath what 
is the true amount of his personal property after deducting 
his indebtedness. 

Real estate is commonly set down at from twenty-five 
to thirty per cent less than its market value. Since as- 
sessors in different places may adopt different standard! 
of valuation, the original assessments are in most of the 
states referred to hnards of equalization appointed for 
each county, and their judgment is subsequently re- 
viewed by a general board for the state. Upon the ba 
sis of the valuation of property so determined, the taxes 



STATE TAXATION, 259 

for state purposes are apportioned to each county, cii^ 
and town. By ^^^eral statute, or by special city char- 
ters, each couj \ city, town and school-district is au 
thorized to levy Uixes for local purposes. These also aro 
apportioned on the basis of the state valuation, except in 
case of certain improvements in cities, such as opening, 
paving and lighting streets, which are charged upon tht 
adjoining property in proportion to the benefit conferred. 
Generally, all these taxes both for state and local purposes 
are collected in each town or city ward, at one time, by 
one collector, who is furnished with a tax-list covering 
all. 

If other means fail, goods may be levied on to secure 
the taxes, and according to prescribed forms of law, lands 
may be sold for delinquent taxes, the title thus given, be- 
ing made complete and valid after a certain period allowed 
the original owner for redemption. 

In most of the states, local taxes are adjusted on th« 
orinciple generally admitted that equitable taxation re- 
quires propeiiy of every kind to he assessed. In actual ex- 
perience however, property in the form of real-estate hears 
hy far the larger share of the burden. Personal property 
can be easily concealed or remoA'ed by those who wish to 
evade their share of contribution to the public weal. On 
this subject, the prevalent moral sentiment is low and 
consciences are weak to resist the strong temptation to 
make false returns and even to commit perjury, when 
detection is almost impossible. The difficulty of attaining 
a perfect result is aggravated by the complexity of our 
government. Property in railways, banks, etc., being 
within the jurisdiction of one state, while the ownei resides 
in another, involves peculiar difficulties. These and othci 
like considerations have occasioned much earnest discus- 
sion, on the part of economists, lawyers and statesmen, 
respecting the property on which ta^xes should be imposed. 



260 DISTEIBUTION. 

We may not here enter at length into these discussions, 
hut one question which especially involves some prmciplcs 
of our science deserves some notice. 

Are Evidences of Debt, Property, t/i which 
{axes should be levied? In defining wealth, w.^ showei] 
that notes, honds, mortgages and the like are not, of them- 
selves, any part of the general wealth. They indicate only 
what the lawyers call " a7i inchoate title " to possession, a- 
mode in which some real wealth is distributed. They are 
symbols, not substance, whose multiplication makes no in- 
crease of real wealth. Suppose A. B. holds his neighbor's 
note for two thousand dollars, secured by mortgage on hii 
farm worth four thousand. The property is one, the 
farm. The note and mortgage only indicate that A. B. 
has a lien on that property for one half its value. The 
loan made and the security given have added nothing tc 
that value. That property is rightfully subject to taxa- 
tion. JVJio shall pay the tax 9 Strictest equity might 
admit that each of the parties should pat/ a half; and that 
mio:ht be established as the rule. But in the verv terms 
of the mortgage, the owner of the farm engages to pay all 
taxes that may be levied on the land, and this is a part of 
the contract, the interest to be paid on the amount bor- 
rowed, being adjusted to that usage. Now, if the owner 
of the farm is taxed for its full value, and A. B. is also 
taxed on the mortgage he holds, there is a double taxation 
on two thousand dollars. The fact is obvious and cannot 
be controverted. Where this rule prevails, there is evi- 
ienily an obstruction to the free flow of capital, which 
works disadvantage to all economical interests. 

The case of a note given without security is essentially 
the same. Suppose for instance, that 0. D. sells hia 
neighbor a horse for one hundred dollars and takes in pay- 
ment a note for the amount, payable at the end of six 



DOUBLE TAXATION. 261 

montlifl, without security, depending on the man's ability 
to pay out of the avails of his industry, in the meantime. 
Here evidently, there is only one item of property, that ia 
the horse. To lay a tax on the horse for its new owner to 
pay, and to tax 0. D. on the note he holds, is evidently 
doubling the taxation. When the note is paid, the horse 
being in good condition, another property appears in the 
equivalent received by C D., and on that he may properly 
be taxed. To vary the case a little, suppose that instead of 
a note payable in money, the purchaser of the horse, being 
a wagon-maker, gives an obligation to build for C. D. a 
wagon worth one hundred dollars, to be finished and deliv- 
ered at the end of six months. Evidently, the horse is, 
but the wagon is not in existence when the contract is 
made. When the obligation matures and is fulfilled by 
the delivery of the wagon, there are two items of property 
both riglitfully taxable. But the promise pending has in 
it nothing real, nothing taxable. The principle rang 
through the whole system of credit. Prosperous industry 
:s continually creating new items of property but the credit 
that runs in divers forms through all the ramifications of 
business, of itself creates nothing, and has not that ^^ physi- 
cal actuality " which is essential to the idea of property. 

A case involving this question and also the question of 
state jurisdiction respecting taxes recently occupied the 
attention of the Supreme Court of Errors of the State of 
Connecticut, and was taken, on appeal, before the Supreme 
Court of the United States. Mr. K., a citizen of Connec- 
ticut, had loaned money through an agent, a citizen of lUi- 
lioia, on bonds secured by deeds of trust, on real estate, in 
the city of Chicago. Each deed of trust provided that 
the borrower should pay all taxes assessed on the property 
without abatement on account of the mortgage lien, and 
the taxes on the entire property were accordingly paid 
under the laws of IlliE^^sj. The Connecticut collectoi 



262 DISTBIBUTION. 

added the amount of the loan to Mr. K.'s tax list in thai 
state, and when payment of the tax was refused, proceeded 
to levy his tax- warrants on real estate belonging to Mr. K. 
lie brought the case before the court, by petition for an. 
injunction. A majority of the judges on the bench decided 
that the bonds were taxable, and that it came within the 
Jnriadiction of Connecticut to lay and collect this douMe 
tax. Judge L. S. Foster, however, gave a dissenting 
opinion. His judgment on the question now before us ia 
thus clearly and forcibly expressed. ^' Property and a 
deU, (considered as a representative of the property 
pledged for its payment,) co7istitute hut one subject for the 
purpose of taxation. The tax being paid on the property, 
without diminution on account of the debt, nothing 
remains to be taxed. The debt indeed, aside from the 
property behind it, and of which it is the representative, is 
eimply worthless." In November, 1879, the United States 
Supreme Court gave its decision in this case as follows: 

" The question presented by tliis case is whether plaintiff in error, 
a citizen of Connecticut, can be rightfully taxed by that State under 
its laws upon certain bonds owned by him, but held in the city of 
Chicago, and secured by deeds of trust on real estate located in that 
city. The Supreme Court of Errors of Connecticut held that the as- 
sessments of which the plaintiff in error complained were in con- 
formity to the State laws, and that the law did not infringe any of 
complainant's constitutional rights. This court sustains the view 
taken by the lower tribunal, and holds that the locality of the debt 
for purposes of taxation is not affected by the fact that it is secured 
by mortgage upon real estate situated in Illinois (State tax on foreign 
freehold bonds, 15 Wall, 323), that the debt has its situs at creditor's 
residence, and it is for the State to determine whether it shall be 
taxed. The discretion of the State in this respect is not, in the opin- 
len of this court, subject to supervision or control by the Federal 
Government in any of its departments, for the reason that such tax- 
«,tion violates no provision of the Federal constitution." 

This decision disappoints us, as it does not touch the 
main question of equity involved. 



CHAPTER XIX. 

FOURTH DIVISION.— EXCHANGE. 

The Nature of Exchange. — In a broad, general 
Tiew, Exchange is a part of tlie machinery of society for thi 
transfer of wealth from producers to consumers. It is a 
Fery complicated piece of macliinery, as clearly appears if 
one will undertake to trace the cotton which enters into 
the structure of the shirt he wears, back to the field on 
which it grew. It is a machinery whose range of opera- 
tions is co-extensive with the surface of our globe, as will 
oe seen, if one will but consider how many parts of the 
world are made to contribute to the sum of dailv comforts 
with which his table and his home are furnished. Hence, 
In the science of Political Economy, it holds a place of 
highest importance ; so that it has been proposed to sub- 
etitute as a title for the science, the term Catallactics or 
the science of Exchanges. 

The general arena of exchange is called the Marlcet, 
and in all the processes of production, the market is the 
object most nearly and directly contemplated. There, 
whatever is produced, except the very little of his own pro- 
ducts which a man consumes, is first to be disposed of ; 
and in every step of the process, the question is before the 
producer's mind, what will this article bring in the mar- 
ket ? This will be determined by the answer given to two 
other questions. First, What iv art or desire of man wil 
this article gratify and how intense is that desire ? and 
Second, What outlay of labor and capital is requisite to 



264 EXCHANGE. 

produce fJiis article f Thus, on the broad field of th« 
world's exchanges, commodities, in almost infinite variety, 
meet and mingle, each marked with a sign of Value which 
is a simple exponent of these two elements, utility, or da- 
irableness and cost. 

Mere specifically, we may say. Exchange is a trans^c* 
iicn 171 wliicli tivo parties voluntarily transfer to each other 
the right of property in certain items of luealth, ichich ere 
regarded as equivaleiits. This transfer must be voluntary 
by both parties, else it involves robbery. If without the 
right of property, anything is given in exchange, it is 
fraud. If one gives in exchange a horse which does not 
belong to him, he confers no right of property, for he has 
none to confer, since the real owner may, at any time, 
reclaim the animal. It is often said that exchange may be 
either of commodity for commodity, as when one gives a 
table for a pair of boots ; or of commodity for labor, as 
when one gives fifty pounds of flour for a day's work at 
mowing ; or of lahor for labor, as when a mason gives a 
day's work to a carpenter on condition that the carpenter 
shall on call, give a day's work at his trade, in return. 
This is proper enough as indicating in each instance, the 
precise form of the transaction. But in reality, the laboi 
is not ever, itself the thing contemplated, but the value, 
in some form of wealth, which is the product of the labor. 
In discussing the principles of distribution, we saw that 
even when wages are paid for labor, the employer has his 
eye always on the value to be j^roduced, though it may be 
that several kinds of labor must be combined before ihe 
value appears in a form to be exchanged. 

Value is thus the central term of this branch of oui 
/icicnce. Let its definition, as given in the second chapter, 
be here distinctly recalled. 

Value is purchasing pr\iuer, or that quality in an ob- 



VALUE. 265 

ject which gives it power to command other cbjecta 
in exchange. 

Value is always a relatke term, and indicates not ac 
ahsoliite quality of an object, but a power revealed by a 
comparison of it with another object. 

Value may be determined hy comparison between an%, 
iwo objects f and must not be confounded with price which 
makes money the one thing with which every thing else 
must be compared. 

Value implies utility, or adaptedness to gratify desire, 
but is to be distinguished from it, since many things of the 
highest utility such as the air we breathe, have no value, 
because they are not the fruit of labor, and cannot be ex 
clusively appropriated. 

Hence, as was just stated. Value is a simple exponerit 
}f the two ele7?ie7its, utility a7id cost. These terms respect- 
vely define the limits of value. The maximum limit oi 
value in an object, is defined by its utility or desirableness. 
The minimum limit of value in an object, is fixed by its 
cost. Objects presented for exchange are always primarily 
compared with respect to these two considerations. 

Between these two extreme limits however, there is 
"oom for considerable variation of value under the law of 
nipply and demand. By demayid is meant the extent of 
desire for any article. Supply expresses the quantity of 
the article in the market, ready to meet that desire. When 
demand is great in proportion to supply, value is enhanced. 
When supply is great in proportion to demand, value ia 
reduced. The law is expressed in a simple formula, appli- 
cable to all things that can be exchanged, thus, Value rise 
directly as the demand, inversely as the supply. Hence in 
all transactions of exchange, the state of the market needs 
to be carefully considered. There, free co7n2Jetition tendB 
to produce an equilibrium between supply and demand. 
When the supply of any article is excessive, its value sinkif 
12 



286 EXCHANGE 

BO that it will not command an equivalent for tiie laboi 
and capital necessary to produce it ; the production of it 
is therefore onr^ailed till the supply is reduced to a level 
with the demand. When on the other hand, the demand 
for an article is excessive, the consequent rise in value 
makes labor and capital in that form of industry more 
remunerative than ordiiary, and thus its production ia 
stimulated till the supply is brought up to a level with the 
demand. To express the expense of labor and capital in- 
volved in the production of any commodity, the term Cost 
is employed. Competition tends to make cost the general 
standard of value. Ilence we have for the rates of ex- 
change, or the value of articles transferred, this general 
formula. 

Value=cost + or — the effect of the ratio of demand to 
supply. 

The effect produced by variation of the ratio between 
demand and supply will be greater or less according to 
several circumstances. 

a. The Durability of the commodity. An increased 
supply of articles, such as fresh fruit and fish, which are 
quickly perishable, causes a great reduction of value. On 
the contrary, the market value of a durable article like 
iron ^vare and cloth, is but slightly affected by increased 
supply. 

h. The Ease or Difficulty of Increasing the Snptply, 
Manufactured articles can generally be produced easily and 
quickly, after ihe facilities are once established. The 
farmer's crops come in but once in a year. Hence a short 
supply of wheat or potatoes raises the value of those arti- 
cles much more than a short supply of woolen goods or 
shoes advances the value of those articles. 

c. The character of the article as a Necessity or a 
Luxury. Under the pressure of scarcity, men will dispense 
with luxuries, rather than pay their enhanced price Snch 



FUKDAMENTAL PEIN"CIPLES. 261 

•rticles as bread and fuel, they must have at any price. 
In the first case, the demand declines as the value rises on 
account of a diminished supply, and the ratio adjusts 
'tself. In the other case, the demand is intensified aa 
the value is advanced by scarcity, because the limits ol 
Iran's power to endure hunger and cold admit of but little 
room for any adjustment, and " all that a man hath wilJ 
he give for his life." 

d. The relation of the article to incoming or outgoing 
Fashion. The freaks and the tyranny of fashion are pro- 
verbial. In highly civilized society, her sway is undispu- 
ted. Those things which are made to meet her demands 
are called ^^ fancy-goods.^^ Both the producer of these arti- 
cles and the dealer in them must study carefully her 
changing moods. The demand for articles conformed to 
the latest style is exceedingly intense and gives them a 
value far above cost ; but the reaction is apt to come sud- 
denly, following no definable law. An over supply of 
goods that are just going out of fashion can be exchanged 
only at a value greatly below cost, though their utility, 
as means of comfort, may not be in the least impaired. 
The successful tradesman sees to it that his gains at the 
hour of flood-tide are sufiicient to compensate the loss inci- 
dent to the ebb. 

TJie fundamental principles of Exchange then are few, 
and may be clearly and concisely stated. It is of the 
highest consequence that they be well understood. There- 
fore, repeating some things already presented, we give here 
summary statement, adopting the distinctions, and to a 
onsiderable extent the precise language, of Mr. J. S, 
Mill. 

All things that are bought and sold may be distribnted 
into three classes. First, There are things of which it is, 
physically impossiule to increase tlie q^lantity heyo'nd cer^ 



268 EXCHANGE. 

tain narrow limits. Such are ancient sculptures, paint- 
ings of old masters, rare books or coins, and wines tlial 
require peculiar conditions of soil, climate and exposure. 
Second, There are things vjhich at a moderate outlay Oj 
labor and capital, can he multiplied indefinitely. The 
majority of things bought and sold belong to this class. 
With laborers and machinery enough, such things as cot- 
tons, woolens, shoes, hats, might be multiplied a thousand 
fold, or at least, till the measure of the earth's capacity to 
aSord materials is reached. Third, There are commodities 
which can he produced in limited quantity at a given cost ; 
hut to increase the quantity involves a much greater pro- 
portional cost. To this class belongs the agricultural pro- 
duce of a limited area of land. A field that yields twenty- 
five bushels to the acre, may be made to yield forty bushels, 
Dut the cost will be much more than doubled. With 
these distinctions and points before presented, in mind, 
the following principles will be plain and almost self-evi- 
dent. 

1. Value is a relative term. The value of a thing 
means the quantity of some other thing, or of things in 
general, for which it can be exchanged. The values of all 
things can never therefore, rise or fall simultaneously. 
There is no such thing as a general rise or a general fall 
of values. Every rise of value supposes a fall, and every 
fall a rise. 

2 Tlie temporary or marTcet value of a thing depends 
(m the demand and supply ; rising as the demand rises and 
falling as the supply rises. The demand, however, varies 
with the value, being generally greater when the thi-ng is 
cheap than when it is dear ; and the value always tends to 
adjust itself so that the demand shall be equal to the 
gapply. 

3. Things have also a permanent, or as it may he callea 
a Natural Value, to which the market value, after everj 



FUIJDAMEI^^TAL PKIN^CIPLES. 26S 

variation, always tends to return ; and the oscillations com- 
pensate for one another, so that on the average, commodi- 
ties exchange at about their natural value. 

4. The natural value of some things is a scarcity value • 
but most things naturally exchange for one another in the 
ratio of their cost of production, or at wnat may be termed 
their cost-values. 

5, The things which are naturally and permanently ai 
a scarcity value, are those of which the supply cannot he 
increased at all, or not sufficiently to satisfy the whole Oa 
the demand which would exist for them at their cost value. 

G. A Monopoly value means a scarcity value. Monop- 
oly cannot give a value to anything, except through a limi- 
tation of the supply. 

^.. Every commodity of which the supply can be indefi- 
nitely increased by labor and capital, exchanges for other 
things proportionally to the cost necessary for producing 
dnd bringing to market the most costly portion of the sup- 
ply required. The Natural value is synonymous with the 
Cost value, and the cost value of a thing means the cost 
ralue of the most costly portion of it which the tnarket 
demands. 

8. If one of two things commands, on tha a"^erage, a 
greater value than the other, the cause must be that it 
requires for its production, either a greater quantity of 
labor, or a kiyid of lalor permanently paid at a higher rate ; 
or that the capital or part of the capital which supports 
that labor must de advanced for a longer period ; or that 
the production is attended with Lome circumstance whiif 
requires to he comp>ensated hy a permanently higher rate of 
profit. 

Assuming that there is, as there ought to be, free com- 
petition in the processes of Exchange, as in the processes 
of Production, the perturbations of value caused by varia- 
tions of demand and supply continue only during a period, 
which cannot exceed the length of time necessary for alter* 



270 EXCHAN"GE. 

ing the supply. Under the pressure of competition, de- 
mand and supply always rush to an equilibrium ; but the 
condition of stable equilibrium .s wiien things exchange for 
each other according to their cost of py oduction, or at 'what 
'fl fitly called their natural value. 

The Necessity of Exchange. — If every man were 
able and content to live by himself, upon the fruits of his 
own labor ; or if tlie members of each household could 
satisfy all their desires by the proceeds of their joint indus- 
try, there would be no occasion for exchanges. But with 
his unfolding intelligence, man's desires multiply and 
reach out beyond the range of his present attainments, 
beyond the range of his own ability too. At the same 
time, to his searching inquiries, nature reveals new means 
of enjoyment which both gratify and stimulate desire, add- 
ing to a present gratification of the senses, the zest of 
discovery and achievement, and the pleasure of hope wliich 
fondly anticipates more and better things to come. There 
are also in man's nature, as a social being, interests, 
attractions, sympathies which multiply and widen nia 
associations and his opportunities, as both a giver and a 
receiver of good things. Thus individuals are grouped in 
families, families unite in communities, communities form 
states and nations, and nations all round the w^orld, inter- 
lock their interests. Under a law of interdependence which 
necessitates mutual exchanges — the giving and receiving 
of benefits — human intercourse runs into civilization, and 
no limits can be set to either its extension or the variety 
and intricacy of its relations. Tlie structure of the lucrla 
furnishes the means of exchange or trade ; a7ul the natur6 
of mail compels him to trade, Exchange is therefore a 
n$cessitij hy the fixed cotiditions of our being. 

The same thing appears in another light. "We have 
seen that for the production of wealth, human labor musi 



NECESSITY OF EXCHAls^GE. 273 

5« applied to objects of nature. The labor thus put forth 
establishes a right of property, partial or incomplete, over 
the objects produced ; and the title to possession thua 
Becurcd, is exclusive and transfer alle. But different pei» 
sons are constituted by the Creator with different aptitude 
for different hinds of labor, and with corresponding likes 
and dislikes with respect to occupations. Both the com- 
fort of the individual and the general advantage are pro- 
moted by every one's devoting himself to that occupation 
which he prefers, and for which he is especially fitted. 
Each will do his best and achieve the largest results when 
his efforts are put forth in accordance with the bent of hia 
own genius and inclination. Under such a distribution oi 
employments, however, every man becomes the producer of 
but a single product, or, at most, of one kind of wealth, 
and of this he produces far more than he can use for hia 
own gratification. At the same time, he has desires for 
the enjoyment of a thousand other objects which must be 
produced by the industry of others, each of whom has a 
surplus like his own to be disposed of. All this varied, 
accumulated wealth must be utterly useless, unless by some 
process of mutual exchanges, each can get what he wants 
hy giving ivhat he can spare. 

Furthermore, we have seen that for the most economi- 
cal and profitable production of wealth, a much more mi- 
nute division of labor is requisite. The diverse labor of 
twenty men may be combined in the production of a single 
object. The part which each performs is of little or ro 
'ise to anybody, except as it enters into the combined 
result. He who in a watch-factory, for instance, devotes 
all his labor to making little screws by the thousand, car 
put the things which he produces to no immediate use foi 
himself ; perfect and beautiful as they are, a bushel oi 
them will do nothing to satisfy the cravings of hunger. 
A hundred men may each contribute some part towarda 



S72 EXCHAITQB. 

the structure of a steam-engine and no one of them can 
ever turn to his own benefit either the part which he makes 
or the whole machine, if he were allowed to appropriate it. 
In this case, and in hundreds of similar cases, there is an 
fcbsolute necessity of some system of exchanges through 
which the one total vahie made up by the labor of many 
different hands, can te Iroken U'p and distrihuted so thai 
each 0716^ s varied wants 711 ay te met and satisfied. 

We may say then, in brief, that the divei'sity of natures 
resources, the diversity of human capacities, and the tvide 
reach of human desires, all of which prescribe for human 
industry the pinncijile of division of labor, necessitate ex- 
change. The conditions of our being demand the pro- 
cesses of exchange as imperatiyely as the processes of 
production. Without exchange, there could be no divis- 
ion of labor, and of course only the smallest possible 
amount of production. Without exchange, there would 
rarely be any stimulus to labor, for labor could add but 
ittlo to our means of gratification, beyond the most abso- 
jute necessaries of life. There would be no stimulus to 
form society, since, as man depended solely on himself, he 
might as well be solitary as social. Uence, all progress in 
civilization would be barred, and the generations of men 
would be held forever witliin the limitations, doomed to 
the comparative isolation of the savage state. 

The same principles apply with equal force to the ex 
changes between different nations. 

The aptitudes of diffei^ent nations for the creation at 
different products, has in many cases been fixed by uti* 
changeable, geographical, and physiological law. Cotton, 
coffee, spices, dye-stuffs, sugar, rice, and many of the most 
valuable fruits and medicines, can be cultivated only in 
Bouthern latitudes. Wool, wheat, and bread-stuffs gener- 
ally, Sax, and the most valuable animals, are produced 



IKTERNATIONAL EXCHAi^GE. 273 

oiily in temperate climates. Iron is found in nortiierr 
latitudes, and furs, hemp, and feathers are brought from 
climates still further north. One country is better adapted 
to commerce, another to agriculture, and another to manu« 
factures. 

Besides, as we have already shown, a nation at om 
period of its history, is better adajyted to one sort of produc- 
tio7i than to another. When capital is scarce and land is 
cheap and fertile, a state is better adapted to agriculture ; 
when capital becomes abundant and land dear, it becomes 
gradually better adapted to manufactures. Thus nations, 
as well as individuals, both by original endowment and 
accidental circumstances, have their special adaptations to 
the creation of particular products. Nations are like indi- 
viduals, disposed to avail themselves of the peculiar advan- 
tages bestowed upon them by their Creator. Self-interest 
teaches them this lesson with sufficient clearness, and they 
«rillingly practice it, if left to their own natural instincts. 

It is also evident that, by each nation's devoting itself 
to that branch of production for which it has the greatest 
facilities, either original or acquired, its own happiness will 
be better promoted, and a greater amount of wealth will 
be created, than in any other manner. And while all 
nations thus appropriate their industry, a much greater 
amount of products will be created for the whole human 
race, than by any change that could possibly be made. If 
Cuba should relinquish the raising of coffee and sugar, and 
devote herself to the raising of wheat, and New York, 
relinquishing the culture of wheat, should betake herself 
to the raising of coffee and sugar, would not both com- 
munities be poorer, and would not the price of coffee, 
Bugar, and wheat be increased over the whole world ? 

But, while it is thus evident that every nation is in- 
tended by the Creator to improve its own advantages, by 
producing that for which it has the greatest facilities, it is 
12* 



274 EXCHAKQB. 

also the fact, that every nation, and every individual of thai 
nation, desires the productions of every other nation, and ia 
happy in proportion as they are enjoyed. What nation 
coiill be happy without the cotton of the south, the hemp 
and iron of the north, or the wool, wheat and manufac- 
tures of temperate climates ? Nay, let any one look at the 
3lothes which he wears, the furniture of his room, or tho 
food and utensils of liis table, and he will be immediately 
convinced, that every latitude of both hemispheres, and 
almost every country on the globe are tributary to his hap- 
piness. His own country has peculiar adaptations, buJ- 
they are adaptations for but few products, while every 
citizen of that country requires for his convenience, nay, 
almost for his existence, the productions of every oi]i(;r 
country. These desires can be gratified only by national 
exchanges. Hence we see that 7iational exchanges enter 
into the constitution of things under which we are created, 
IS much as individual exchanges. 

And the final cause of this constitution is in both cases, 
equally evident. Individuals are made thus dependent 
upon each other, in order to render harmony, peace, and 
mutual assistance, their interest as well as their duty. 

And for the same reason, nations are dependent upon 
each other. From this universal dependence, we learn 
that God intends nations, as well as individuals, to live in 
peace and to conduct themselves toward each other upon 
the piinciples of benevolence. "Where all are mutually 
dependent, no one san prosper without increasing the pros- 
perity of all, nor suffer without bringing suffering upon all. 
Hence, it is as truly our interest to seek the happinesSj 
peace and prosperity of other nations, as it is to seek the 
happiness, peace and prosperity gI our own nation. 

The Agents of Exchange. — The business of ex- 



AGEXT3 OF EXCHANGE. 275 

change is obviously a distinct department of nsefu^ inlus- 
try. By it, commodities, after they are produced, are 
brought within the reach of consumers, so that they can 
have them in such places, at such times and in such quanti- 
ties as are most convenient. This involves labor, and so 
far increases the cost of the objects ; it also adds to their 
desirableness ; hence, in both ways their value is increased. 
The value of commodities in the last exchange which 
passes them to the consumer is, on the average, probably 
double that at which they pass from the hands of the origi- 
nal producei's. We have no reason to complain of this, 
for their utility as well as their cost, is increased by every 
step of the process. Coal at the mouth of the Pennsylvania 
mines cannot minister to the comfort of a home in Chicago, 
The bales of calicoes which are tnrned out of the mills ir, 
Lowell, cannot clothe the farmers' daughters on the Illinois 
prairies, until they have been transported, broken up and 
distributed so that the keeper of the country store can 
how the goods and measure off by the yard just whtit they 
want. The poor laborer, who easily buys a dollar's worth 
of- sugar at a time, would deem it a hopeless undertaking 
for him to pay for a barrel of the article at once. The 
consumer can well afford to pay for having things pre- 
sented, so that he can get them just where and when and 
as they will best meet his wants. 

On the other hand, the pi'odncer is no less benefited 
by this intermediate agency. In civilized society, labor is 
divided so that one raises farm produce, another works on 
iron, another on wood and another on leather, etc. Now, 
if each one is obliged to suspend his labor and go out to 
find purchasers for his products, much time will be lost. 
It would clearly be a great benefit to the whole community 
if^ while others are busy with their various forms of pro- 
ductive labor, one should devote himseK to the business of 
making exchanges. Each producer might then deposij 



276 EXCHANGE. 

with him whateyer he had to oiler in the market, and take 
m exchange whatever he found adapted to his own wants. 
Meantime, he who gives his entire attention to exchanges, 
Icarus the wants of the community, acquires by habit 
good judgment in estimating the quality of the articles h^ 
handles^ and exercises his invention to facilitate the satii- 
faction of w^ants, to the advantage of all. Thus, the pun- 
ciple of Division of labor which adds much to the economjf 
of production, is equally applicable to the industry of 
exchange. It requires that certain persons devote them- 
selves exclusively to this labor of effecting exchanges, and 
that they receive a fair compensation for their service, 
lioth producers and consumers share in making up that 
compensation by the percentage charged on the values 
transferred ; that is, the producer sells his products to the 
eychanger for a little less than he would receive if he sold 
tbem directly to the consumer, and the consumer pays th^ 
exchanger a little more for what he wants than if he bought 
directly of the producer. But the expense of conducting 
'he exchanges is far less than it would be without such 
intervention. 

Merchants is a general name for those who devote them' 
selves to the business of exchange. But the principle ol 
division of labor applied to this form of industry, intro- 
duces a considerable variety of agents with a corresponding 
diversity of names. We shall not attempt to present a 
lull list of the names, nor a full exposition of the various 
forms of service rendered. But a few may be speciGed to 
^et forth in a general way, the phases and functions of the 
world's multiform and wide-spread commercial operations. 
8ince by its very nature, exchange always involves giving 
and receiving, we must recognize in the commerce of every 
community and nation, two great currents of trade — an 
outgoing current and an incoming current. The outgoing 



AGEXTS OF excha:n'qe. 277 

current bears away what a people have to spare ; the in- 
coming current brings back what a people want. Each oi 
those currents has its own agencies, at different stages ol 
he movement. 

Let us suppose ourselves in a section of country whoee 
shief productions are the fruits of agriculture — in the graii* 
regions of the west or the cotton regions of the south. 
Each farmer's crops bring him a surplus quite beyond what 
he can use for his own needs. IIow is he to dispose of it ? 
When the country is new, he has no alternative ; he must 
himself transport it twenty, fifty, a hundred miles, it may 
be, to the nearest place .of trade, and there make liis sale, 
and with the avails purchase whatever he most needs. But 
as soon as settlers are sufficiently multiplied, some one 
opens a store in the farmer's immediate neigiiborhood. 
We call him a Retail mercliant, for he has all sorts of goods 
to sell, in quantities as small as any may wish. For the 
goods he sells, he is willing to receive whatever his custom 
ers have to spare, making his own arrangements for transi- 
porting the produce to a larger market. His title, retail- 
merchant has respect only to his sales in small quantities. 
But for the time, he occupies a double position and fulfills 
a double function. lie stands at the extreme end of the 
line of incoming trade, for the articles which he sells mak- 
ing the last transfer, that passes them directly to those 
whose wants they are to satisfy. He stands also at the be- 
ginning of the Ime of outgoing trade, gathering up those 
surplus products of his neighborhood which, starting ob 
their course from his hand, are to float on the current of 
trade, half round the world, it may be, to find their ulti- 
mate consumers. As population grows more dense, and 
wealth increases, another agent appears on the ground. 
He is called sometimes a middle-man, sometimes a produce- 
buyer, sometimes a co7nmission-dealer. By arrangement 
with some house at a commercial centre, he is authorized 



278 EXCHAKQB. 

to buy for otliers the grain, the cotton, the beef, the po-'k, 

the wool, the eggs, the butter, the cheese, or whatever ol 
one kind or of many kinds of produce may be ordered, and 
IS compensated by a percentage or commission on the 
values purchased. To him the store-keeper readily resigna 
one part of his business, and the rills from many fountaino 
ire gathered into a regular flowing stream. With the in« 
troduction of railways, come in the warehouse-men, one at 
every station, who works in a small way to send a portion 
of the country's products into the great warehouse or ele- 
vator of his correspondent in the commercial emporium. 
The farmer now has his option either to sell outright to the 
agent near home, or to send what he has to the distani: 
city, there, for a small fee, to be stored, while he takes hia 
chances with the general market. So we recognize in the 
interior city, other agents connected with the outgoing 
current, such as the Consignee and the Produce-brolcer, 
who pass on the stores accumulated in Chicago and Buffalo, 
to the sliipjnng-merchayii of the great seaport. New York or 
Baltimore, thence to be exported to the ends of the earth, 
as the needs of men may require. 

In former times, when manufactured articles were 
mostly made by hand in a small way, at the scattered 
homes of workmen, such products were gathered and 
thrown upon the current of trade, in much the same man- 
ner as that just sketched. But the extensiA^e use of machi- 
nery in these later years, has concentrated manufacturing 
industry in large establishments, whose products are passed 
out upon the currents of trade through the agency of Fac- 
tors or commission mercliants. Each large factory or mill 
has its agent of this kind in one of the great commercial 
centres, to Avhom the greater part of the products are sent, 
ae soon as finished, and he manages the sale and distribu 
tion of them in the general market, receiving his compen* 
eation, sometimes by salary, oftencir by a percentage on 



AQEXTS OF EXCHAKQE. 279 

the amount of sales. A domestic factor is one who 
renders this service in the country in which the goods are 
made ; a foreign factor attends to the business in anothel 
country. 

To understand the functions and agencies connected 
t^'ith tlie incoming current of trade, we take our stand ai 
l".he port of entry, say New York. Here the agency of the 
Importer is first to be noticed, lie studies the wants of hia 
v.'wn country and the products and prices of foreign coun- 
tries, generally with respect to a particular kind of com- 
modities ; and as a real purchaser, orders what he thinka 
rhe needs of the country demand. The goods thus im- 
ported he sells generally in bulk, by sample, to the JV7wle- 
sale-mer chant. He opens them more fully and sells by 
bale or case to the Jobher. Of him the Refail-mercliani 
buys by the piece and smaller package, and through him, as 
ne pas.^es them to his individual customers in such quanti- 
ties as they desire, the distribution is complete. 

To idl these agents, must properly be added the whole 
class of Bankers, Brokers and Dealers in exchange drafts, 
etc., who have to do w^ith money and credit, the instru- 
ments of exchange ; also, those who as Underwriters and 
bisurers, give special attention to guarding the risks, by 
land and by sea, involved in trade. But these will come 
up for more particular notice in another connection. 

Thus in outline, we get a view of the manifold pro- 
cesses and agencies of exchange. In the actual operations 
of commerc>B, these functions are further divided, partially 
combined, variously diversified, minutely ramified, so that 
ihe conqjlicallons of trade hecome extremely intricate ; and 
yet by some hidden law of self-adjustment, the machinery 
works out its legitimate result, so that the wants of men 
are met, with little waste of the products of human indus- 
try. It is an exceedingly economical arrangement 
Though the prit)e which the consumer pays for his yard ol 



280 EXCHANGE. 

cloth covers sometliing paid to the agent of every succes- 
sive transfer through which it has passed, yet it is less, b^ 
much, than it must have been without this organized sys* 
tern of exchange. Exchangers are as necessary to the 
cheapness of production, as 2^'^odncers themselves. Let 
competition be free with both producers and exchangerSj 
and all things will come into the consumers' hands as 
nearly as possible at their natural value. The machinery 
of exchange is worth all and more than all it costs. Wo 
b-ee how absurd is the outcry sometimes made against tho?e 
engaged in mercantile business that they produce nothing. 
The general tendency of their service is to cheapen every- 
thing offered in the market and to enrich the market by 
a thousand-fold multiplication of comforts and luxuries for 
the life of man. The laborer may sometimes feel like com 
plaining, that the merchant has an easy time sitting at his 
desk, while he is sweating at his hard toil ; that the mer- 
chant rides in his carriage, while he trudges on his weary 
way afoot ; that the merchant is rich, while he is poor. Bu 
if he considers how a hundred merchants fail, where one 
succeeds ; how intense and wearing is the merchant's hrain- 
work; how sickening often amid his perplexities, is the 
showy style of his mode of living ; and above all, how inti- 
mately connected are the services of the mercantile class 
with both the wages which he, the laborer earns, and the 
cheapness of everything he buys in the market for his sup- 
port, he will hush his complaint, under the conviction that 
no lot in life is free from its trial, and that the interests of 
men of different occupations are so woven together that 
adversity to one class is adversity to all, and true prosper- 
ity for one is prosperity for all. 

While we thus fully recognize the useful, indispensable 
service rendered by the agents of commerce, sound econ- 
omy requires that the number and expense of these agen- 
cies be reduced as far as practicable, consistently with the 



AGBN^TS OF EXCHAJfGE, 281 

free and effective action of this important machinery of 
civilized society. At the same time, there is occasion for 
warning and protest against the ahuse of the power In theit 
hands which we see sometimes practised by these agents. 
A single trader or a company of traders combining may 
avail themselves of their knowledge of the state of the 
market to produce an artificial scarcity, that they may by 
suddenly raising prices rob the people and enrich them- 
selves. Thus in the grain trade which centres in Chicago, 
by secret conspiracy, such *^ corners in ivheat,^^ have been 
produced, to the serious injury of other dealers, and of 
consumers and indirectly of the farmers with whose pro- 
duce they thus gamble. Sometimes an opposite course is 
taken, and the trader uses an advantage he has gained for 
the hour to produce an artificial but tem^jorary cheapness, 
to be followed by a sudden rise of prices which will more 
than compensate his first loss. Too many of the so-called 
** Boards of Trade," not only tolerate but countenance and 
encourage such abuses of trust and power. Both justice 
and philanthropy cry out against such proceedings, and 
the word of God seems to warrant the ban of righteous 
indignation — " He that withholdeth corn, the people shall 
curse him ; but blessing shall be upon the ':jead of hira 
that selleth it" 



CHAPTER XX. 

myi-EY AS AN mSTEUMENT OF EXCHANGE. 

Money. — Exchange, like every otlirr department oi 
industry, may be greatly facilitated by the use of prop.er 
instruments. Simple Barter, that is the exchange of one 
commodity for another without the intervention of any 
common standard or medium, may m.eet all the exigencies 
of savage life, where private property is restricted to a 
narrow range and exchanges are few. But as society 
emerges from that state into civilization, exchange in kind 
becomes embarrassed by many and serious difficulties. 

Suppose a man has made a table with which he desires 
to buy bread, meat and shoes. If shut up to barter, he 
niust first find some one who wants a table of just that 
Bize and style. Then he must find probably three other 
parties who make and have to spare the articles he wants. 
Then by a series of negotiations with them and others, he 
must bring about such a division and distribution of the 
value of his one table, as shall give to the baker, the 
butcher and the ^hoQva-dkQY a fair equivalent for that which, 
he desires from each. The outlay of time and labor neces- 
Bary to effect the desired exchange in this way, must be 
fully equal to that required for making the table. The 
question naturally arises, is there not some means by 
{^hich this expenditure, or the greater part of it, can be 
saved ? 

The difficulty is still greater when a compensation is to 
be provided for labor. The farmer, in the spring, calls in 
the help of a man to plow and cultivate his fields* This 



DIFFICULTIES OF BA.RTEB. 28S 

labor fi?-!!] create value, but months must pass before that 
\i\\ue will appear in form to be exchanged. ]\Ieantimo, 
the laborer has wants that clamor for pi ese?it satisfaction ; 
but how can those wants be provided for unless by some 
levice which shall permit the fruits of his labor to be 
Irawn upon, before they appear in the ripened crop ? Tht3 
ease is yet worse with the workman in an iron foundry. 
How can he and his family be fed and clothed, if he must 
take his pay in the iron which he helps to produce ? 
More embarrassing still is the difficulty as labor becomes 
minutely divided, for the most productive methods of 
civilized industry. When a man devotes himself wholly 
to making rivets for knife-handles, or to giving edge or 
polish to knife-blades, how is he to subsist by exchange in 
kind ? 

It would bring some relief to these embarrassments if 
an establishment were set up and opened as a store, where 
all the various articles which any in the community desire 
to exchange might be gathered under the charge of some 
one especially skilled in negotiating exchanges. But 
then, an ever recurring difficulty would be experienced in 
adjusting the equation of value between different articles, a 
shovel and a pair of boots, for instance ; and for the com- 
jtensation of labor, especially under tlie minute division 
of labor, scarcely any relief could be obtained. Under the 
pressure of these difficulties, men have been driven to the 
invention and adaptation of certain instruments, which 
bear the same relation to the operations of exchange, which 
tools and machines do to the processes of mechanical indus- 
try. By a common instinct of discovery and adapjtation 
to a need universally felt, peoples of different ages and 
countries have taken up essentially the same means ot 
relief ; and their evident fitness for the purpose, rather 
than any authoritative enactment, has secured their uni 
versal adoption. 



284 EXCHAN"GB. 

Money and Credit constitute the two great instru* 
ments of exchange. Of the two, moTiey is both in ordei 
ol time and of importance, first. It is all essential to civil 
ijed trade, and without it the other has little or no mean 
mg. Yet credit, though only a representative or sjmlol 
©f money, and always subordinate to its control, is leally 
the working engine which accomplishes far the greater 
pai t of the work ; when properly regulated, giving effect- 
iveness and balance to a world-wide commerce, but when 
abused, causing disturbance, convulsion and disaster 
through the entire system. A clear apprehension of the 
nature and functions of these two instruments of exchange 
is of the highest importance to an understanding of the 
science of political economy ; it is of no less consequence 
to the successful practical management of mercantile busi 
ness and of public finance. We attempt, therefore, a clear 
and distinct exposition of elementary truths pertaining to 
these two things, with fullness enough to indicate at least, 
the chief points of its practical application. 

'M.oney may le. defined to te some ^iseftil product of lahor 
which serves as a standard of value hy which wealth of every 
kind is measured^ and as an instruvient hy ivhich one kind 
^f wealth can be exchanged for another. 

Let the two functions of money be carefully observed. 

Pirst, Money establishes a universal Standard of Value. 

Second, Money is a Medium for the exchange of Values. 

In its first-named function, as a means of ascertaining 
the relative value of different commodities, money per- 
forms an oflice precisely like that of a pound- weight, or a 
yard-stick or a gallon-measure. As each of these is ad» 
justed to be a standard measure of a certain quality, one 
of weight, another of length, and another of capacity, so 
the money-dollar is adjusted to be a standara measure of 
the quality called value, Wliatever is thus used for thi 



MONEY A STANDARD OF VALUE. 28d 

measurement of a quality must itself possess tlie quality in 
question. You cannot weigh a piece of meat with a ray 
of moonliglit, nor get the length of a piece of cloth by 
means of a drop of quicksilver, nor measure a gallon of 
alcohol with the edge of a knife-blade, ^o more can you 
define the value of these or any other objects by unreal 
notions or shadowy symbols. 07ily a thing of value can 
measure value. 

According to our definition, value may be resolved into 
two elements, viz., utility or desirableness, and cost, the 
exponent of labor. Whatever substance then, is used as 
money, must be capable, in some way, of ministei'ing to 
meii's gratification, so that it shall be generally desired, 
and the nearer it comes to being always and everywhere 
desired, the better is it fitted for its purpose as money. It 
must be also a substance which can he ohtained only hy 
labor, and the more uniform the amount of labor found 
necessary to obtain it, the better is it fitted for its purpose 
as money. These elements must be combined, neither is 
suflicient of itself to form value. Nothing in tlie world is 
more useful than the air we breathe. All men desire it ; 
without it they die. But it has no value. You cannot 
bring it into the market as an article of exchange, because 
it is furnished freely to all, without labor — it costs noth- 
ing. So too, there may be exhibited to you the result of 
weeks and months of labor on the part of one who tried to 
make a flying machine. After all is done, the thing has 
no beauty to cause it to be desired. There is no want of 
man which it can possibly be made to gratify. It has cost 
a deal of labor, but it has no value, for it can be put to no 
use whatever. The value of money therefore depends upon 
the combination of these two elements in the substance 
employed. Both are indispensable. Ilence in our defini- 
tion, we say that the substance of money is " some useful 
product of labor, ^^ 



286 EXCHA^fGB. 

It is of the highest importance that any standard of 
measurement should be fixed luith exactness and kepi ai 
invariable as possible. When a standard unit of measure- 
ment for the material qualities of length, surface, volume 
and weight was to be determined for the French govern- 
ment, nearly a hundred years ago, the Academy of Sciencea 
recommended that one ten millionth of the quadrant of a 
terrestrial meridian be taken. Seven years of great labor 
were occupied in ascertaining with nicest exactness the 
length of that linear base, called the Metre, By this, the 
unit of surface, the unit of volume, and the unit of weigh 
were determined with equal care and the metric system 
was made as nearly perfect as any human device can be. 
Nature furnishes us no such absolutely fixed and invaria- 
ble unit of value. But it certainly behooves men to select 
for their standard of value, the most stable and unaltera- 
ble thing to be found in nature. All the transactions and 
contracts of trade depend upon precise determinations of 
the values involved. If the standard of measurement is 
variable, all these operations must be attended with uncer- 
tainty and confusion. Hence the importance of securing 
to money the utmost possible precision and stability of 
value. " All substitutes for it, all modes of economizing 
or facilitating its use, are equitable and legitimate only so 
far as they preserve its essential attributes of precision and 
'jnchangeableness." All things are exchanged with refer- 
ence directly or indirectly to their prices ; but price is 
value measured hy money. Hence money, as a universal 
gtandaM for the measurement of value, is an indispensaliU 
agent of commerce. 

Money in its second function ^ as a Medium of excliangcy 
also performs a very essential service in the commerce of 
the world. The real object of all trade is to eHect an in- 
terchange of commodities. The actual wants of men ara 



MONEY A MEDIUM OF EXCHANGE. 28? 

met only as every one, by parting with one article, ma^ 
secure some other article which he needs. The difficulty 
of doing this directly has been already noticed. That 
difficulty is overcome by the intervention of Money, a third 
article, which all desire, partly for some intrinsic qualitiea 
which it possesses, but more for its adaptedness to just 
this function of a medium. By means of it, what cannot 
he effected by one exchange may be easily accomplished by 
two. The man can sell his table for money. The money 
is easily divided, and the baker, the butcher and the shoe- 
maker are quite ready for their respective portions, of the 
money, to sell him the bread and meat and shoei< which 
will satisfy his pressing wants. Through this moJium, by 
two exchanges, the end is easily attained, which ^^ould not 
be attained by one exchange without vastly more of trouble 
and labor. This common medium must eviden-,ly be som% 
emhodimeoit of value, which one can safely receive for the 
commodity he wishes to part with^ because he Knows that 
it will be received by others at the same valuation, for 
whatever he may wish to purchase. 

Tlie essefiiial qualities of such a common medium of 
exchange, are three : 

First, Precision and Stahility of value, the same qual- 
ity which we saw to be of highest consequence, for tha 
first named function of money. 

Second, U^iiversal Acceptableness so that it will readily 
be received by everybody for whatever he has to dispose of. 

Third, Divisibility into parts, representing, without 
loss of value, different degrees of value, so as to furnish an 
esact equivalent of any required amount. 

We can conceive that one substance might be adopted 
as a standard of value, and another employed as a medium 
of exchange. Thus wheat might be selected as the standard 
to which every tiling else should be referred, and certain 
beautiful African shells called cowries, havirg been firs^ 



288 EICHAiq-QB. 

measured and marked by that standard, might be used as 
counters in the actual transfer of articles. But such an 
arrangement would involve many inconveniences. There 
would always be something arbitrary and uncertain in the 
adjustment of the two to each other, and the necessity of 
keeping in mind two objects, so different, would confuse 
and complicate all operations. Ilence the necessity that 
the same substance should fulfill these two functions, and 
that it should combine the qualities necessary for loth. 

This does not imply however, that money as' a medium 
must he actually used in every exchange that is made. 
When once a standard of value is defined, different com 
rnodities can be measured by it, and then interchanged by 
being offset against each other according to their respect- 
ive values. Thus the farmer's wife brings her basket of 
eggs and her firkin of butter to the village grocer. In 
terms of money, she sets her price for these articles, and 
he in like manner, names his prices for the tea and sugar 
and spice she wants, and the trade is at once adjusted and 
consummated without any payment of money on either 
side. The same thing is going on all the time, on an im- 
mense scale, in the commerce between New York and 
Liverpool. By processes hei'eafter to be exphiined, ship- 
'Oads of wheat are balanced off against ship-loads of manu- 
/actured goods, the values on either side amounting to 
millions of dollars, without the actual payment of any 
money. Thus through the function of money as a meas- 
ure of value, the greater part of the trade of the world 
eecomes really exchange in hind. Yet this cannot be, 
except as there is money within reach to be used as a 
medium of exchange when an exigency demands its iurter- 
pos-tion. Li the last settlement, the lalaiice must he paid 
m money, and at every step the i echoning is kept i7i motley's 
worth. 

Since wealth is continued and increased only b^ 



AfiTICLES USED AS MOiTET. 289 

repeated processes of consumption and reproduction, in- 
volving an interminable succession of exchanges ; and since 
money is the constant medium of exchange, wealth of 
CYcry kind must more or less frequently, for a longer or 
shorter time, appear in the form of money. EverytJiing 
that has value will come at some time or other to have its 
price and le estimated in terms of money. This close iden- 
tification of all wealth with money, in whose form it some* 
times appears, has occasioned the mistake noticed in a 
previous part of this work, of resolving all wealth into 
money, so that money is regarded as the most desirahle of 
all things to be brought into a country. The best correc- 
tion of this mistake comes from a clear apprehension of 
the true nature of money, as a simple instrument of ex- 
change, fulfilling its two important functions ; itself form- 
ing but a very small part of the world's wealth and capable 
of increasing wealth only indirectly, as it facilitates those 
multifarious exchanges which carry every kind of wealth 
where it is most needed to satisfy the wants of men. 

Ajiy article which has value may he made to perform 
Ihe functions of money. Thus by different nations and in 
different ages of the world, various articles have been em- 
ployed. Among pastoral nations, cattle have been quite 
commonly employed as the chief instrument of exchange. 
Homer tells us that the armor of Diomede cost nine oxen. 
So the wealth of the patriarch job is estimated by 
the number of his sheep and camels and oxen and asses. 
Hence, probably, arose the custom among the Greeks and 
Romans of stamping their earliest coin with the figure oi 
ai: ox or sheep. Thas the Latin word for mxoney, i^ecunia 
if5 supposed to be derived from pecus, cattle. In ancient 
Syracuse and Britain, money was made of tin, in Sparta of 
iron. We find used for the same purpose, a preparation 
of leather among the Carthaginians, platinum in Russia, 
13 



290 EXCH 4.NGB. 

lead in Burmah, nails in Scotland, pieces of silk among tha 
Chinese, cubes of pressed tea in Tarfcary, salt in Abyssinia, 
cowrie shells on the coast of Africa, slaves among the 
Anglo-Saxons, tobacco in Virginia, codfish in Newfound* 
land, bullets and wampum in the early history of Massa- 
chusetts, logwood in Campeachy, sugar in the West-Indies, 
soap in Mexico. But from the time of Abraham, when ho 
paid (Gen. xxiii : 16) to the children of Heth " three hun- 
dred shehels of silver, current money ivith the merchajit'^ 
— the earliest record of a purchase with money — till now, 
gold and silver have been employed as the money of tho 
world with civilized and commercial people. In most Ci 
the cases mentioned, when other articles were employed, 
the stmidard of value was recognized as set by the preciou? 
metals, and on account of the scarcity of these metals, the 
other things named were used as a medium of exch mge. 
Thus the wampum and bullets of Massachusetts, the 
tobacco of Virginia and the sugar of the West Indies, 
Dassed from hand to hand, to effect particular exchanges, 
vith a commercial value, more or less distinctly recognized 
.n terms of silver or gold. It should be noted that when 
anything that has been used as money is devoted to any 
other use, its functions as money cease. Gold coin ^rned 
jito gold plate, just as really as tobacco or sugar passed to 
consumer, is no longer money. 

Whatever Substance is used as Money must 
be Universally desired as such. — Its object is to 
Cacilitate exchanges, but it cau accomplish this object oiily 
by means of the willingness of the whole community to 
exchange for it everything which they are willing to part 
with. If one individual of a community prefers one sub- 
stance, and another individual anoZ-.her, exchanges will be 
embarrassed by unnecessary coniplicatior, and by the use- 
lesd consumption of time. And if on the other hand, anj 



KECESSABY QUALITIES OF MON^ET. 291 

substance is thus universally desired, on account of the 
great facilities which it offers, and the great saving of 
labor which it effects, it will be immediately used for thia 
purpose. And it will be so used without any agency of 
gOTornment, and even thcigh a government did not oxi&i^ 
just as a man will use any other instrument for increasing 
the productiveness of his labor as soon as he can procure 
it, simply for the reason that it is for his advantage. 

If the exchanges of a country were wholly internal, it 
would be sufficient that such a medium were universally 
acceptable in that country alone. But, inasmuch as every 
nation has important and extensive exchanges with other 
nations, it is an additional advantage to have the same 
substance used as a medium of exchange. That exchange 
is the most profitable for a country, in which it exports 
what is relatively most abundant at home, and imports 
that which is relatively most wanted at home ; and imports 
t from that country in which, what it exports is most 
wanted, and what it imports is most abundant. Now it is 
evident that money may be accumulated in any country, 
BO that it shall be relatively lower in value than other com- 
modities. Thus, the precious metals may be so abundant 
in this country, that a merchant can procure more iron in 
Kussia by sending a given amount of gold, than by send 
ing the flour which would here be equal in value to the 
gold. It is therefore for his advantage to send the gold, 
and it is equally for the advantage of his country. And 
for the same reason, if in this country there is a relative 
scarcity, it will be for the advantage of other nations, aa 
well as for our advantage, that they should send gold or 
eiher in exchange for our products. In this manner, ex- 
changes are made, of that which is least wanted by both 
parties, for that which is most wanted by both. This 
enables both parties t® supply tbemselves at the lowest 
rates. 



292 ECXHAKGE. 

Besides, it a very desirable that the value of mone^ hi 
as Utile as pospihle liahle to fiuctuation. Now if the same 
substances are used in all the civilized world, this fluctua- 
tion, if not absolutely prevented, will be so restricted, as 
o produce the least possible amount of evil. When gx- 
:;hanges between countries are frequent and numerouSj 
and ihe prices of all commodities are universally known 
by the merchants of both, as specie may be sent abroad 
witli -^ery little cost of transportation, a very sl'ght advance 
in its relative value will cause it >k) flow m from other 
countries, and a very slight surplus will cause it to flow to 
other countries, until the common equilibrium is restored. 
In this, we see in what manner the universal employment 
of the same substances, by all nations holding intercourse 
with each other, will be an advantage to all ; Inasmuch as 
it will prevent any great fluctuation in their rektive value 
in any particular countrv. 

The adoption by a community or state of a kind of 
money which is not acceptable in other countries, neces- 
earily excludes that people in great measure from the com- 
merce of the world. Thus in ancient Sparta, in order to 
maintain the policy of isolation which ruled the state, and 
to restrict all foreign commerce, it was enacted that the 
monev of the state should be of iron alone. This measure 
had Wq eifect to repress trade, but it also made the Spar- 
tans the most venal and corrupt of all the peoj)les of 
Greece. For the free and prosperous commerce of civil- 
ized nations, it is of the highest importance that the stand- 
ard of value and medium of exchange adopted by them bo. 
aniform. The circulation in a country of an irredeema* 
Die paper money, or the adoption of a standard of specie, 
at variance with that in use among other commercial 
nations, must inevitably impede the trade and impair the 
industry of that country. 



QUALITIES OF GOLD AKD SILYER. 293 

The special adaptedness of Gold and Silver 
for the functions of money is due to certain qualitioa 
which are found j)eculiarly combined in these metals. 
These qualities should be specifically noticed. 

1. Gold and silver are iiiivinsically desirable. Thcii 
rrilJlancy, their malleability, their resistance of corrosion 
and their permanence fit them especially for ornaments 
for the person, for plate and for the manifold decoration 
of temples, houses and equipages. Articles made of these 
materials or adorned by them have an intrinsic beauty 
which gratifies the taste of men universally. They are 
desired by rude and cultivated people alike. This taste, 
which has been uniform and enduring through the ages, is 
not likely ever to change or pass away. "We have reason 
to believe that those which are fitly called the precious 
metals will always be sought after for these and other 
more substantial uses to which they may be applied. Their 
further use as money only enhances and makes more con- 
stant and steady their general desirableness. 

2. These metals are oltainahle only hy lador ; a7id the 
amount of lalor necessary to oUain them is more invarialiU 
than that which pertains to otlier substances. Occasionally 
in California or in Australia, one may have chanced sud- 
denly to find a nugget of pure gold, but ordinarily, gold 
and silvtr are obtained as the fruit of labor in long and 
patient search, washing sands, breaking rocks, reducing 
ores and separating the metal from other substances with 
which in nature it is associated or combined. The amount 
produced is directly and immediately dependent on the 
labor employed Tv/ice in the history of the world, viz,, 
on the first discovery of America, and on the unfolding ol 
the mineral treasures of California, Australia and the 
llocky Mountains, there was a sudden increase of the 
amount of these metals in the world's market. But la 
both cases, this increase of the material of money was lol- 



294 EXCHAiSTGE. 

lowed very closely by an expansion of tie commerce of tha 
world which caused a corresponding increiisc in the demand 
for money, so that the equilibrium between supply and 
demand was but slightly disturbed. 

As we have seen, the two elements of value are desira- 
lUness, and cost measured hy the lal or necessary to ohiain a 
fiven object. In respect to both tliese elements, gold and 
silver are permanent and uniform beyond any other pro- 
ducts 01 human labor. Hence their vahie is less fluctua- 
ting, more stable than that of anything else, and therefore 
♦".hey are best adapted to fulfill the functions of money. 

3. These metals concentrate wiihm a small lulh a large 
amou7it of value. In the use of them as the instrument of 
exchange, much labor of transportation is saved. They 
are conveniently portable. A man may easily carry in his 
pocket, the value of a wagon -load of wheat, or a car-load 
of cattle, when put into the form of gold. At the same 
time, their value is not too much concentrated as is the 
case with diamonds. 

4. These stihstances are copalle of minute Division 
without loss of value. This is a quality essential for facili- 
tating all sorts of exchanges. A gold eagle or a silver dol- 
lar may be divided into ten equal parts and each piece will 
have the value of just one-tenth of the original coin ; the 
value of all the pieces together will be equal to the value 
of the one whole piece. A large diamond is worth sever.il 
times its weight of small diamonds, and once broken into 
pieces, its original value can never be restored. 

-5. These metals are of uniform Quality. Gold and 
silver pure are always and everywhere the same. At the 
same time they may be readily alloyed that they may 
be rendered harder and so better adapted to use as money. 
But they can easily be refined and restored to their origi 
nal purity without loss. 

6. TJiese substances are of such a nature UimI their valu4 



QUALITIES OF GOLD A:N^D SILVER. 295 

m% 1)5 easily verified. They are malleable, easily wroug'hi 
into any shape, aud capable of receiving and retaining a 
distinct impression. Their brilliant lustre, their uniform 
weight and tlieir resistance to the action of acids, make ii 
easy to distinguish them and to detect adulteration. 

7. These metals are nearly Indestructible by accident Of 
use, No ordinary fire consumes them. They are not de 
composed by atmospheric influences. They wear away 
Tery slowly. " It has been ascertained, from data care- 
fully obtained in the bank of England, that gold in coin 
loses only 4.16 per cent in one hundred years, or about one 
per cent in twenty-five years." 

8. These two metals are adapted to each other, for the 
different exchanges, large and small, luhich the trade of civ- 
ilized countries requires. If gold should be so minutely 
divided as to represent very small values, the pieces would 
oe counted with difficulty, and easily lost. If silver alone 
were used for all exchanges, its great bulk, when large 
values were represented, would involve much inconve- 
nience. It is a great advantage to have the two metals, to 
be used as money, the one for large, and the other for 
small values. If each has its natural sphere defined, and 
js held to its own peculiar function, the slight variations 
in their relative value, which from time to time occur, will 
work no serious evil. 

It is because gold and silver possess these essential 
qualities for the functions of money, that they have beea 
so long and so universally employed as the money of tlio 
world. We use them as an instrument of exchange, not 
because they bear a certain stamp, nor because government 
has made them a legal tender, but because we know that 
they represent a give?i amount of value, and that therefore 
we can exchange them for the same amount of value when- 
ever we please. In the strictest sense, the only Real 
money consists of these precious metals in the form of coiu 



296 ifiXCHAXGE. 

stamped and issued by government authority. The varionf 
representatives and substitates for this which are employea, 
are properly embraced in the broader term currency, and 
will be noticed in treating of credit. 

The views given of the nature and functions of mone;f 
establish certain truths which are worthy of distinct state- 
ment. 

1. Since cost of production is the basis of value, in 
every exchange the cost of the money emjjloyed is to bs 
regarded as equal to the cost of the article for which it is 
exclianged. If a barrel of flour in Lima is exchanged for 
ten dollars, the cost of producing the flour and of trans- 
porting it to Lima is equal to the cost of producing the 
silver and transporting ifc. Mr. McCulloch says, " What- 
ever may be the advantages attending the use of coined 
money, its introduction does not affect the nature of ex- 
changes. Equivalents are still given for equivalents. The 
exchange of a quarter of corn for an ounce of pure unfash- 
loned gold bullion is undeniably as much a real barter as 
if it had been exchanged for an ox or a barrel of beer. 
But supposing the metal to have been formed into a coin, 
that circumstance, it is plain, could have made no change 
in the barter. A coin is merely a piece of metal of known 
weight and fineness ; and the commodities exchanged for 
it are always held to be of equal value." 

2. The generalitse ly all nations of tlie same hind of 
money as the instrument of exchange, and the universal 
freedom of comjnerce everytvhere must serve to equalize any 
variations i?i the cost or in the stivply of money. The 
opening of new and richer mines, or the use of improved 
means for extracting the metals, may cheapen money. 
The value of money, like that of any other commodity, ia 
also affected in short periods by fluctuations of supply and 
demand. But the commerce of the wcrld is the great reser* 



PBOrORTION OF MOS^ET TO AMOUNT OF IHADE. 2'J7 

voir, the ocean encompassing the globe, into which all con- 
tributing streams of money flow, and its level is essentially^ 
(he same every ivhere, varied only by considerable lapses oi 
tirre. If there is more money in a country than is needed 
for iU exchanges, the price of goods is raised and it is sent 
sbroad for new purchases. If there is a scarcity of money 
Ifl a country, the price of goods declines and money comea 
in from other lands to be exchanged for them. Thus by 
a law as simple and constant as that of the tides, tho 
money-market regulates itself, provided only tirade is fret 
find money is real and the same every where. 

3. The amount of money in any one country and in aVi 
countries is very small in proportion to the luhole amount 
of wealth and of values exchanged. As a standard of value 
money may be said to regulate all exchanges. As a medium 
of transfer, it is actually employed in comparatively few, 
and performs its office luith great rajndity. By the simple 
process of keeping accounts, which are occasionally bal- 
anced, a little money suffices for the exchanges of any 
community. By like means, in yet greater degree, are the 
.arge operations of trade between different nations, con- 
ducted without the transportation of much money. It 
flows from one country to another only in the process of 
equalization just spoken of. So far as it is employed in a 
particular community, the same money may be used ten 
times or more in a day, each time fulfilling its purpose. 
In general, the more freely it flows, the more rapidly it 
passes from hand to handj, the better for the prosperity of 
business. 

4. Aji increase of the amou7it of money in a country % 
of no advantage unless it is demanded by an increase of 
production a7id of active trade. It must be remembered 
that money is only aa instrume^it or a machine like a 
plough or a power-loom. It is of no advantage to a com- 
munity to have a hundred ploughs when only fifty can be 

13* 



298 EXCHANGE. 

nsed, or forty looms wlieii twenty will do all the work. 
So, if one million dollars serves all the purposes of exchange 
in a city, to double the amount of money will bring no 
benefit. If it is a city isolated from the rest of the world, 
such an increase will merely double prices, that is, twice 
as much money will be used in every exchange. If its 
trade with other places is free, the superfluous money will 
float away on the tide of commerce to some point where it 
is needed, just as a surplus of wheat or cotton goods or 
any other commodity must do. 

5. The abundance or scarcity of money in a country is 
not of itself a trustiuorthy index of prosperity. We need 
to look back of the fact to its cause. If money is abundant 
because business is stagnant and exchanges are few, it is a 
Bign of adversity rather than of prosperity. If a scarcity 
of money is caused by an increase of products and great 
activity of trade, it indicates a prosperous condition. In 
countries containing rich mines of the precious metals, 
money or the material for money becomes a product oi 
regular industry, and its abundance is a favorable sign. In 
.another country money may be very scarce, because from 
its scanty resources or on account of the degradation of its 
people, little is produced which can be exported to bring 
money in exchange. In this case the scarcity of money is 
a sign of poverty. 

8, T}.<: oft-repeated maxim, " It matters not what be^ 
comoj of property, so lofig as the money is in the country,''^ 
is false and mischievous. The great tire of 1872, in Chi- 
cago, within thirty-six hours, consumed property valued 
at about two hundred million dollars. But the vaults 
&Ld safes of the banks protected the money of the city so 
that at most, a few thousand dollars would cover all that 
was lost in that form. Did the fact that tlie money was 
gnved compensate in the least for that wasteful destruc- 
tion of every other kind of wealth ? C*^tributions from 



AGENCY OF GOYERXMEJ^^T. 29S 

ill parts of the world provided immediate necessities for 
the relief of suffering. With means obtained largely by 
credit, the city was rapidly rebuilt. The pressure of the 
burden of loss was thus eased and postponed for a time. 
But at length by the embarrassments and failures of 1876-7, 
he people of that city and many in other parts of the 
country were made to understand that it does matter what 
becomes of the property of a country. Labor and capital 
valued at a million dollars may have been expended in set- 
ting up a great manufactory which has proved an utter 
failure. So much property is thereby lost. Are not those 
who so invested their capital and the whole community so 
much poorer for that useless outlay ? Does the fact that 
the money paid out in erecting and ]outting up the estab- 
lishment is still circulating among the people change the 
essential feature of a dead loss ? That money was but the 
instrument by which so much wealth was thrown away ; 
whatever other purposes it may serve, it cannot now bring 
back to the owuers what they have lost. If a thief in the 
night had emptied your store-house with a wheel-barrow 
you could not easily be convinced that it made no differ- 
ence, you were no poorer, since he had left the '^heelb'^^- 
row behind. 

It is the complications of credit with money, hereafter 
to be considered, which mystify most minds on this sub- 
ject and really produce a great part of the apparent varia- 
tions in the value of money, in different countries and it 
liifferent epochs. 

The Agency of Government with respect to 
Money. — Men use money in exchanges, for the same 
reason that they use hammers for the purpose of driving 
tiails, because they find that they thus save time and labor. 

Had governments no agency at all in the matter, the 
precious metals, as an instrument of exchange, might have 



800 EXCHANGE. 

been both introduced, and universally employed ; and they 
would have been so introduced and employed, as they act- 
ually were in the time of Abraham. Hence, as we have 
before remarked, these metals derive their use as money 
fiom their inherent fitness, and the desire of men so to 
employ them, and not from any agency of government. 
While, however, this is the case, and while this is alwaya 
to be borne in mind, there is yet some agency, which 
society, or government, which is its agent, may exert, that 
shall increase the convenience of whatever may be used 
as money. 

This agency has reference to two objects. 

First, Whenever any substance has been found univei- 
sally adapted for the purposes of exchange, it is important 
that it should be used by all men, unless something to the 
contrary be specified by particular contract. If I owe » 
man for a hat, and when I come to pay him, he demands 
payment, not in silver, but in beaver skins, I may not be 
able to procure them and he may hold me his debtor and 
deal with me accordingly. If, instead of paying him in 
silver, I offer him leather, and declare that I will pay him 
nothing else, he will be defrauded out of his due. Now, 
to prevent disputes without end, it is desirable that some- 
thing be fixed upon, the tender of which shall discharge 
forever the debtor's obligation. And as this would most 
naturally and most justly be the substance which all men 
accept as money, this is most pioperly chosen. Hence, 
society or government has a right to establish the precious 
metals as a Legal Tender ; that is, to enact tliat if a man 
deolarcs that I owe him ten dollars, and I offer him ten 
(Silver dollars, if he chooses not to receive them, I am 
ander no obligation to give myself any more trouble about 
it. The tender, on my part, is a full release. I am undei 
no oblig?.tion to offer anything else ; and he has no right 
to demand anything else Nor is there in this any oppres- 



COIITAGE. 801 

gion. If a man wislies to be paid in something besides 
money, he can always specify it in the contract, and thus 
his object can be accomplished. The whole effect of snch 
a law is to prevent disputes, and to enact what shall be a 
full and valid release from obligation, when nolhiug spo 
ciQc has been agreed upon. 

Second, The utility of whatever is used as money 
will be greatly increased by its careful iwe'paration for ih 
purpose. This is accomplished by the process called 
cOv'tdiig. 

It is evident that the preparation of coin for the public 
use could never be safely entrusted to individuals. The 
temptations to dishonesty are too great for ordinary human 
virtue. Such a work should be executed by those, whose 
interest would lead them to perform it with the greatest 
possible fidelity. Hence, in all civilized countries, indi- 
viduals have surrendered the right of coining money to 
the government, to be exercised by agents appointed for 
that purpose. These agents should be men of science and 
skill, acting in such circumstances that their interest will 
oe strongly on the side of honesty, and under such super- 
vision that any failure of either skill or integrity can be 
easily detected. 

In coining the precious metals to make them money, 
the government must have regard to the convenience of the 
public in three particularp, viz., the Quality of the coIe, 
its Size and its Form. 

1. The metal of the a inage must he of uniform purity » 
Were it otherwise, every piece must be tested by chemical 
rtnalysis. Since money ^s liable to loss from wear, and 
iince it is very difficult to bring the precious metals to a 
liondition of absolute purity, it is found of advantage to 
mingle some portion of alloy with the metal as it is pro- 
pared for coining. This renders the metal harder, and 
Eoakes it feasible to set the standard of purity at an exact 



502 EXCHAKQB. 

point. The degree of tliis adulteration should, howeTCT 
be fixed by law, making it invariable and publicly known. 

2. The coins must be of Sizes most convenient for ilu 
purposes of exchange. If made too large, they cannot wai] 
be carried about ; if too small, they are easily lost and in« 

olve much time and trouble in counting. Hence, tha 
dvantage of using two or three different metals, gold for 
the higher values, silver for a lower grade, and copper for 
the lowest of all. The relative proportion of the pieces to 
each other should be adjusted so that all can be conve- 
niently enumerated. On this account, the decimal system 
adopted in the United States and in France is probably 
preferable to any other. The size once fixed upon should 
remain invariable. 

3. The coins should hear such Forms that each piece shall 
indicate distinctly its value. If any portion of the metal 
has been feloniously abstracted, the fact should appear in 
a change of form. For convenience in counting and pil- 
ing, flat coins are preferable. To present the least surface 
to friction, some thickness is desirable. IJhe surface needs 
to bear some variety of impression, so that if the metal 
is filed or worn away, it may be apparent ; the same pur- 
pose is subserved by milling the edges. The effect ol 
friction is further obviated by raising a rim on the edge ol 
the coin. It would be of advantage also, if the amount of 
pure metal in every piece were stamped upon its face, so aa 
to give assurance that the quality of the coin is unimpaired. 

The true oflfice of the government in this business of 
coining money is simply to promote the convenience of ihi 
^tlic by verifying and giving definite form to that which 
is the world's chosen standard of value and medium of ex 
change. In principle, it is precisely the same thing which 
it doe-s in establishing standard measures of length, sur- 
tsce, weight and capacity. Its action in the two cases 
differs only in this, that with respect to the other meas- 



COIITAGB, 303 

nres, it can safely leave anybody to manufacture the instru- 
ments to be used, if they will but bring them to be veri' 
ficd by comparison with its established standard ; but in 
the case of money, there is a special liability to fraud and 
deception, which is best obviated by the government pre- 
paring, under its own authority and supervision, the instru* 
ments which are to be used in measuring values. 

Since the manufacture of coins requires considerable 
labor with expensive machinery, and since the metal coined 
has additional value from the means of verification con- 
ferred upon it, which inures to the benefit of the owner, it 
is right tliat the oiuner should pay for the service ren- 
dered. It is common therefore, when a jjerson brings bull- 
ion to the mint to be coined, for the government to require 
a small payment for the operation. This charge is techni- 
cally called Seignorage. It should be no more than just 
sufficient to defray the expenses of the work, otherwise 
private individuals will be tempted to undertake the busi- 
ness for gain. The machinery and processes for coining 
under the direction of the government are now brought to 
such perfection, that the actual expense is very trifling. 
It is computed to amount to only one-fifth of one per cent 
for gold coins, which rate was charged by the United States 
government, but in 1873 the coinage of gold v/as made free. 

In continual use, coin becomes worn so that its impres- 
s^ion is effaced and its value is diminished. When thua 
unfitted for circulation, it is but fair that the government 
ehould make arrangements under certain limitations, tc 
repair the loss at its own expense. It would not be right 
that the entire loss should fall on the last holder. Accord- 
ingly, by law, gold coins of the United States are receiva^ 
ble at the treasury, at their denominational value, when 
not reduced in weight, after a circulation of twenty years, 
as snown by the date of coinage, more than one half of one 
per centum. 



304 EXCHAlfGE. 

The government must also have some authority to con 
trol the circulation, within its own territory, oi foreign coins 
OtherwisBj worn and depreciated coin of other countries 
may come in and drive out its own superior money. Some 
years ago, our country was flooded with Spanish and 
Mexican silver coins greatly worn, which caused our own 
better coin to disappear. The evil was j-elieved by an act 
ordering that the foreign pieces should be received only at 
a discount of twenty per cent on their face value, though 
they had really lost only ten per cent. The old coins were 
immediately collected and melted up. 

In the operations of international commerce hitherto, 
great inconvenience has been caused by the lieterogeneous 
character of the monetary systems of different countries, in^ 
volving troublesome fractional operations in reducing the 
coinage of one country to that of another. This matter has 
attracted much attention of late, and earnest attempts 
nave been made to bring the civilized nations of the world 
to adopt a system of correlated international coinage. 
This would require only that each nation should adjust its 
coinage to the same gold standard, determine the units of 
its system so that they shall all possess simple numerical 
relations, as to weight, with the gramme, the metric unit 
of weight, and give a decimal character to the standard of 
purity, that is, to make the coins of nine parts pure metal, 
(gold or silver as the case may be) and one part alloy. A 
slight change in the systems of the leading commercial 
nations would secure this uniformity, and we trust at no 
distait day, it will be accomplished. If with this change, 
there could also be more fully adopted a uniform system 
cf weights and measures, the exchanges of the wcrld 
would be greatly facilitated. 

The legitimate agency of government with lespect to 
money extends not much beyond the action we have con« 
sidered. Laws forlidding the exportation or importation 



QUESTION OF DOUBLE STAN^DAED. 305 

of money are unjust and mucliievous. Money, like any 
other commodity, if let alone, will regulate itself. It will 
be sent abroad or brought into a country, just as will be 
most for the common advantage. Such restrictions inter- 
fere with individual property- rights. A man has the sam« 
right over the money he may possess, tiiat he has over hig 
cotton or wheat, or any thing else, that is, a right to ex- 
change either luith any one or for anytliing on which tho 
parties may agree, as may seem for his advantage. 

There may be occasion for a government, at times, to 
alter the value of its coinage. But this ought never to be 
done arbitrarily, nor for the advantage of the government 
itself, nor of any class or party, but solely to subserve the 
public convenience or advantage. Such changes neces- 
sarily interfere with private contracts and in the relation 
of creditors or debtors, wrong one side or the other. 
These interests, therefore, should be carefully protected in 
auy acts changing the value of money. 

For the same reason, it is obvious that nothing but ex- 
treme necessity involving the very existence of the nation 
can warrant a government in making anytliing hut gold 
and silver a legal tender. In such an exceptional case, 
when the exigency is passed, sound policy demands that 
the general finances of the country be restored to the basis 
of real money, with as little delay ana with as little shock 
as possible. 

The question of a Double Standard. — TVe have 

Been that the use of both gold and silver as money, for 
convenience in the adjustment of exchanges where different 
degrees of value are concerned, is highly advantageous, 
almost indispensable. Should the standard of value be 
defined in terms of each metal and both be made legal 
tender to an unlimited extent : This is a distinct que» 
tion, and one of no little importance. 



306 EXCHANGE. 

A brief statement of the unique experience of the 
United States during the first hundred years of our na- 
tional existence may throw light on the question. The 
United States Mint was established by Alexander Hamil- 
ton, Secretary of the Treasury in 1792, and a system of 
bimetallism was adopted, not from preference, but from 
necessity, because the money in use at the time was mostly 
silver. The unit of coinage was the gold dollar containing 
24.75 grains of pure gold. The ratio between gold and 
silver was fixed at 1:15, which was about the ratio in the 
world's market at the time. A legal-tender power was 
given to all the gold and silver coins, and the right was 
granted to any person to have bullion of either metal 
coined by the mint, at the legal rates, free of charge. At 
the start, the conditions were all favorable for a fair ex- 
periment of the double standard. 

But before the close of the century, the relative values of 
gold and silver began to change. Between 1800 and 1810, 
the ratio was fluctuating between 1:15|- and 1:16. Then 
Gresham's law, that when two kinds of money are both legal 
tender, the cheaper one will drive out the dearer from cir- 
culation, began to operate. Gold disappeared and as early 
as 1817, the United States had but a single silver currency. 
This disappearance of gold, the extensive issue of paper 
money and the circulation of foreign coins combined to 
make the condition of the currency from 1820 to 1830 
extremely confused. To relieve the difficulty, the coinage 
law of 1834 was enacted. This changed the legal ratio 
from 1:15 to 1:16, which involved an under- valuation of 
silver. At the same time, a readjustment of the weights 
of the coins was effected, not by bringing the silver dollar 
up to the value of the gold dollar, but by bringing the gold 
dollar down to the value of the silver dollar. This in- 
volved an over- valuation of gold as currency and only ag- 



UNITED STATES EXPERIEISTCE. 307 

gravated the effect of the imder-vahiation of silver to drive 
silver out of circulation. 

The great influx of gold from Eussia, Australia and 
California after the year 1849, produced yet further dis» 
turbance and there was not silver enough left for small 
change. This led to the act of 1853, which was a prac- 
tical abandonment of the double standard. It aimed to 
reduce silver to a subsidiary metal, by three measures. 
The first reduced the amount of silver in the fractional 
coins which make up a dollar, so that what had been worth 
104 or 105 cents was made worth less than 100 cents ; the 
second withdrew the privilege of free coinage so as to limit 
the supply to the actual needs of the public ; and the third 
limited the legal-tender power of silver coin to payments 
not exceeding five dollars. It was this act and not, as 
is often affirmed, that of 1873, which demonetized silver. 
The country willingly acquiesced in the adoption of the 
single gold standard, and for ten years it worked admirably 
until the exigencies of the civil war led to the extensive 
issue of legal-tender notes and a fractional currency which 
soon drove all specie out of circulation. The act of 1873 
simply dropped the silver dollar from the list of coins 
thereafter to be issued from the mint, thus recognizing 
the results of the act of 1853. 

From the year 1876 may be dated a rapid decline in 
the value of silver. Several causes combined to produce 
this. The production of silver was greatly increased from 
rich mines newly discovered. The act of G-ermany de- 
monetizing silver threw its surplus on the general market ; 
the states of the Latin Union diminished their purchases; 
and the demand for silver from India was decreased as its 
advancing civilization checked the use of that metal for 
personal ornaments and substituted A^arious forms of credit 
for inoney in the transactions of trade. More effective 
than all these perhaps was the silent but steady absorption 



308 EXCHANGE. 

through previous years, of gold into the currencies of the? 
chief commercial nations of Europe which caused a dis- 
placement of a large mass of silver currency. In order to 
resist this decline, our Congress in 1878 passed a law re- 
quiring the coinage of at least $2,000,000, worth of silver 
bullion each month and gave it unlimited legal-tender 
power. But as such legislation must always be, this proved 
ineffectual. Silver continued to decline till, at the close of 
1885, the government bought its silver at 80 cents an 
ounce and issued it at one hundred cents, stamped as its 
dollar. But this money did not please the people. Instead 
of going into circulation, it accumulated in the vaults of 
the Treasury, and the desperate measure was urged of com- 
pelling the acceptance of this debased coinage in payment 
of the nation's debt. History records repeated instances of 
despotic sovereigns who have debased their coinage to re^ 
lieve their financial straits. But the verdict of common 
sense denounces such acts as dishonorable, unjust, tyran- 
nical. Will they be any less so done by our free Eepublic.f^ 
The most important aspect of the question is in its 
bearing on existing contracts. As civilization advances 
aivi the operations of commerce are extended and magni- 
fied credit enters more and more into all transactions of in- 
dustry and trade. Fluctuations in the currency inevitably 
modify outstanding obligations, working injury to either 
the creditor or the debtor party. Hence it is of the highest 
importance that the standard of value be as invariable as 
possible. Gold and silver are both liable to some fluctua- 
tions as the cost of their production varies, but experience 
has shown that of the two, gold is the more stable and 
hence preferable for the standard. The attempt to unite 
the two in a double standard involves the special difficulty 
of determining and maintaining the relative values of the 
two metals. But the ratio of these two values is very in- 
constant. However carefully adjusted at one time, it 



IKTEKl^ATIONAL ACTIOK. 309 

is impossible to keep it fixed. As soon as any material 
difference appears, the cheaper will be chosen for the pay- 
ment of obligations;, and the dearer will be transferred to 
other countries or melted up because it has a higher value 
as bullion than as coin. Hence the necessity of frequent 
interferences of the government with the money of a 
country, to the disturbance of its true functions. 

These fluctuations might be relieved in part, if all 
countries were to adopt the double standard. Then money 
of either kind, being acceptable everywhere, whichever 
w^as in excess in one country, might find its way to some 
other country where there might be a deficiency. Even 
then, however, there would be a necessity, from time to 
time, for some kind of a congress of nations to determine 
the relative value of these metals. For one country by 
itself to adopt the double standard without qualifications, 
must inevitably work to its disadvantage, by embarrassing 
the movements of exchange with other parts of the world. 

The employment of silver as a subsidiary Cyoin, making 
it a legal tender in exchanges within defined limits of 
value, involves no such evils and secures in the highest 
degree, the advantages of the two metals, as each becomes 
the complemeyit of the other, each fulfilling its function a$ 
money, in a sphere to which the other is not adapted. 



CHAPTER XXL 

CREDIT AS AN INSTEUMENT OP EXCHANGE. 

The Nature of Credit. — In its generic sense, Crodii 
u Reliance on the trutlifulness and integrity of one's feU 
low-we7i. Some exercise of it is essential to the very exist- 
ence of society. With the advance of civilization it works 
:naturally and necessarily into all the mutual relations of 
mankind, and especially into their business intercourse. 
According to its extent and the soundness of its basis, it 
becomes a sign of the social condition and character of a 
people. It marks the chief distinction between civilized 
and savage life. 

The simplest services cannot be interchanged without 
credit. If you hire a laborer to do a day's work, you must 
trust him as one able and faithful to do what you wish, 
and he must trust you for his pay until the end of the 
day. When you take your horse to the blacksmith to be 
shod, you commit your property to his charge, confident 
that he will not abuse the animal, and he lays out his labor 
and skill, assured that you will not drive oif with the bene- 
lit of liis work without making due compensation. The 
merchant puts his goods into your hands, believing that 
vou will hand him in return, the money which is their 
once. So in everv kind of transaction between man and 
man, there is an interval, it may be a minute, it may be a 
year, it may be a term of years, during which trust on one 
or both sides must be exercised. 

As a technical term of Political Economy, Credit U 



FOEMS OF CREDIT. 3H 

Trust in the promise of an equivalent to he rendered at a 
future time for values iinmediately transferred. Ic tlie 
machinery of Exchange, credit is thus a substitute foi 
money, with which it is more or less comhined in all oper- 
ations, exerting a mighty power for good or eyil. It is 
the chief cause of i\iQ Jin ctiiat ions of trade. As an instra» 
ment of exchange, it is indispensable and yet it must o<j 
regarded as a dangerous instrument, needing to be used 
always with some precaution. 

In further treating the subject, we shall present, first 
the Forms of credit, second the useful Functions of credit, 
And third, the mischievous Abuses of credit. The suc- 
ceeding chapter will be occupied with Banks as the Agents 
of credit. 

The leading Forms in which credit enters into the 

operations of Exchange are 

1. Boole- Accounts, h seller extends credit to a buyer 
'or such time as they may agree that the account shall 
run. The butcher wants the baker's bread and the baker 
wants the butcher's meat. Each makes his morninsr pur- 
chase of the other to be charged in account. On the day 
of settlement, the balance is struck and the deficiency, on 
whichever side it may be, is paid in money, or carried to 
new account. So a farmer may anticipate the returns of 
his harvest by a running account at the store. In this 
case, the promise is implied in the direction to make each 
charge. 

2 Loans. A lender gives credit to the borrower on 
[he strength of his formal promise, generally written, to 
pay at a definite time in the future with interest, the 
money now advanced. Thus a farmer may have a surplus 
of products not needed for his own use. These he turna 
into money and lends it to the blacksmith for the purcliase 
of tools and materials to set him up in business, trusting 



312 EXCHANGE. 

In hie ability to refund him from the prodacbs of his ^^oric 
The promise may be sustained by security pledged, aa a 
chattel-mortgage or a mortgage on real estate. 

3. Mercantile Paper. Goods are transferred from a 
manufacturer or an importer to a jobber, or from a joh' 
r>er to a retailer, to be paid for after thirty, sixty or ninety 
days, out of the avails of a second sale. In this case, the 
j^romise takes the form of a negotiable note, and the 
extent of the credit will be limited by the character and 
ability of the buyer. This paper may be and often ig 
passed to other hands, according to the exigencies of the 
holder, and thus, to a limited extent, it floats in the com- 
munity as a marketable article, subject to the regular 
dealings of brokers and money-lenders. 

4. Banh-deposits, The depositor gives his banker 
credit for money put into his hands, to be paid on his order, 
and accepts a certificate or an entry in his bank-bool\, as 
the promise, the voucher for the transaction. The orders 
by which these deposits are drawn out are called checks, 
by means of which, credit in this form, may float about 
with a limited circulation, at home ; and as the basis of 
bills of exchange, hereafter to be more fully explained, 
credit may thus reach round the globe, performing a very 
important part in the exchanges of individuals and of 
nations. 

6. Stocks. A number of individuals may enter into 
association, combining their capital for banking, manufac- 
turing, building a railway or any other business. Each 
gives credit to the association for the capital he puts in 
and accepts a certificate of stock as the promise or voucher 
of the association. His trust is in the honesty and skill 
of the officers and directors to make the business safe and 
profitable. These stock-certificates, being transferable, 
may pass into other hands or be thrown upon the market, 
»t the will of the holder, llius credit may become itseli 



PROMISSORY isOTES. 313 

an article of merchandise with a current price, determined 
by the public estimate of its safety, or expectation of its 
profitableness, which will fluctuate under the influence oi 
yarious causes, natural and artificial. 

6. Bonds issued by corporations, cities, states and 
nations. "Whoever receives and holds these for money 
paid gives credit to the body corporate or politic, whose 
promise is embodied in the bond. Their value is estima- 
ted by the degree in which they command the public con- 
fidence, and they bear a price accordingly. These, like 
stocks, are made articles of merchandise in a regular and 
legitimate trade. They are sought by many for the in- 
vestment of money, because they combine the advantages 
of known security, long time and ease of transfer. When 
nowever, for any reason, they become uncertain or unsta- 
ble, they are made the sport of wild and reckless specula- 
tion. In such cases, credit furnishes the instruments for 
stock- gamblers to play with. 

7. Promissory Notes issued by banks or governments 
and designed to pass from hand to hand as Currency. 
The public, receiving and using these, gives credit to the 
oanks or governments, and confidence rises or falls with 
all causes which affect the ability or the stability of the 
promissor. We include here, all tlie forms oi paper money 
— the purely Credit currency, like our greenbacks, where 
the promise rests on the simple wording of the paper — 
Mixed currency, like that of the old state-banks and of 
our present national bank notes, where the promise is sus- 
tained by a quota, great or small, of bullion or by govern- 
ment bonds, held for its fulfillment — and Mercantile 
currency, as it is sometimes called, like the notes of tho 
bank of Hamburg, where is kept in the vault of the bank 
a gold dollar for every paper-promise of a dollar in circu-* 
lation. These all involve credit, they differ only aa 
respecis the ground for trust, in actual resources for the 



314 EXCHANGE. 

fulfillment of the promise. In this form, credit flies every 
where and attaches itself to CTery transaction of business ^ 
safe and helpful, or liable, like a bubble, to sudden infl.'i 
tions and collapses, according as it is restricted and rogu 
latcd, or left to the freaks and fancies of men's fluctuating 
hopes and impulses. 

Under one or other of these heads, all the forms oi 
credit in common use may be classed. The concise state- 
ment brings out both their distinctive and their common 
features. 

In all cases, the true hasis of credit is real luealth, ex- 
isting or prospective, which is or is expected to be at the 
command of the party trusted. Its essence is confidence 
in the ability, truthfulness and integrity of the party 
trusted. When either of these is weakened, credit wavers. 
Just in proportion as credit is pushed out by the sanguine 
hopes and expectations of men, beyond the solid ground of 
existing values, it tends to become illusive and dangerous. 

The useful Functions of Credit. — As we take up 
this* topic, a few words are needed to clear away some con- 
fused and erroneous notions which are quite commonly 
entertained. 

Credit is not Capital. It is only a means of transfer- 
ring capital from one person who cannot use it to another 
who can. If a man has borrowed ten thousand dollars 
to set up a flouring mill, the property in the mill is so far 
not his own, nor are the proceeds of running the mill all 
his own. The interest to be paid on this borrowed capital 
is so much added to the necessary outlays of his business. 
TLs returns must be by so much reduced. 

Credit does not of itself create Capital, It cannot b} 
any magical power, make something out of nothing. 
Wealth does not grow by the mere act of passing from 
hand to hand. Its increase comes only from its union 



FUKCTIOHS OF CEEDIT. 3 la 

wifch labor. The transfer may favor such a union ; it cai 
do no more. 

The same capital cannot he used lotli hy the ot^ynef a^id 
ly him to tuhom it is lent, at the same time. It is pluifc 
tliut a farmer who has lent his plough to a neighbor, can- 
not, at the same time use his plough on his own fiekh 
No more can B use for his own purposes the thousand 
dollars which he lent to A. He may use A's note as 
Becurity in borrowing the same amount of C, and C may 
use it again to borrow of D, and so the series may be ex- 
tended to Z. But there is only one thousand dollars of 
capital to be recognized, and the whole series of transac- 
tions is settled by a single act, when A pays that amoun 
to Z, the last holder of his note. 

But indirectly, credit when held to its legitimate func- 
tions, does render important seryices to all departments of 
industry. 

1. Credit Irings ivealth into the form of Capital ana 
maJces it available for the increase of ivealth. Many persons 
possessing wealth are in circumstances which forbid their 
employing it themselves in a way to make it productiye. 
Widows, minors, aged persons, professional men otherwise 
occupied and unfamiliar with trade and manufactures, are 
often the owners of property from which they need an in 
come, but they cannot by their own labor, make it produc- 
tiye. In every community, there are many engaged in v?ri- 
ous forms of active labor, who can, year by year, lay by littj<? 
savings, but they cannot bring these savings at once into 
union with their own labor. If there were no such thing m 
credit, or if from want of mutual confidence am3ng men, 
it were scantily practised, all this wealth in the aggregate 
amounting to millions of value, must be idle, or be wasted 
in unskillful and unsuccessful attempts to make it yield a 
profit. The various forms of credit furnish facilities for 
transferring whatever surplus wealth any one may have to 



316 EXCHANGE. 

the hands of those producers or traders^ who^ in active 
business^ have the means of employing it to best advan- 
tage. Thus while credit is not itself capital and cannot 
create capital, it does greatly increase the sum of wealth 
available as capital for profitable uses, much to the benefit 
of both borrower and lender. 

2. Credit gives efficiency to the industrial talent of a 
country. Many a person who has strength and skill, and 
all needed qualifications for business, has no capital of his 
own. Without credit, his peculiar, it may be eminent 
capacities must be partially or wholly unemployed. By 
means of credit, however, he is enabled to obtain control 
of capital, on which his energies may be expended so as to 
bring in large returns both for himself and for whoever 
trusts property to his hands. In our country, those who 
have proved most effective in increasing wealth have been 
almost invariably, persons who have begun business with 
only their own energies and a character to inspire the con- 
fidence of others. Patient, effective industry needs con- 
tinually to be sustained by the judicious exercise of credit. 
The best encouragement for a young man to make the most 
of himself is the assurance that his energy and fidelity will 
be a ground of confidence which will secure to him all 
needed means for the employment of his capacities. By the 
general increase of both enterprise and wealth, the whole 
community derives a benefit from such exercise of credit. 

Credit is then, in the light of these two views, indis- 
pensable both to the drawing out of the entire capital of a 
country, and also to the most effective development and 
exercise of the industrial talent of a country. These we 
have seen to be the two elements of production by which 
wealth is increased. Thus the free exercise of credit on a 
sound and stable basis, touches the very springs of indus- 
trial enterprise. 

3. Credit quichens exchanges. The most important 



^FKCTIOKS OE CREDIT. 317 

functions of credit pertain to the sphere of E5 change. In 
that sphere, first in order comes the office named. Pro* 
duction must generally be more or less in advance of the 
demand for commodities. The produce of the farmer 
stored in his granary, and the products of the manufac- 
turer waiting for purchasers, are so much capital lying 
idle. It will be of advantage to the producer to make thia 
portion of his capital available at once. By selling hia 
products for the note of a responsible buyer, payable at 
the end of three months, he is able to do this. For, thia 
note in the form of what we have called " Mercantile 
Paper," can be used immediately as the basis of a loan 
and so becomes as serviceable as if the goods had been 
sold for money. The first sale may be to a middle-man or 
a commission merchant, and so it stands at the beginning 
of a series of exchanges through which the goods must 
pass before they reach the consumer. Each sale may be 
facilitated in the same way by the use of credit, and thus 
the articles are brought within reach of the public, just 
when and where they are needed, and the capital repre- 
sented by their value, is turned over by each party with- 
out delay. It is, as we have seen, only one capital, but 
credit keeps it moving along the whole line of exchanges 
in repeated service. Without this facility, there must be 
temporary suspensions of industry, and long pauses in ex- 
change. This function of credit has very much to do 
with keeping the market of a community supplied all the 
time with things needed. 

4. Credit serves directly as a7i Instrument of Exchange, 
The simplest phase of this function in hook- accounts ha. 
been already noticed. A buys of B on credit, and B 
buys of A on credit. At the year's end, the books on 
either side are balanced, by the payment of the difference 
or by simply carrying it over to begin the account current 
for the next year. 



318 EXCHAi^GE. 

The same thing is accomplished on a larger scale hi 
credit in the form of Baiik-dejjosits. Suppose a commu- 
nity in which the leading business men make their deposits 
in a single bank. Then, if A makes a purchase of B worth 
a hundred dollars, he will make his payment by a check 
wliich B will send to the bank, and the amount will be 
added to his deposit account. The check simply withdraws 
a hundred dollars from A's to be added to B's account on 
the books of the bank. B, on the same day, and in the 
same way, may make a payment of the same amount to 
C and to D and D again to A. Eour payments have 
been made by four checks passed into the bank. On each 
of four accounts, two corresponding entries have been 
m.ade ; and yet at the close of the day, the four accountg 
stand just as they did at the beginning. For these trans- 
actions, not a dollar has been drawn out of the bank or 
even counted in it. Credit has been the sole instrument 
of exchange employed. All the business-men in the com- 
munity are using it in a greater or less degree, to fulfill the 
same oflice. 

In a large commercial city like Xew York, through a 
hundred or more banks and exchange-brokers, credit is 
doing the same thing every day, for fifty thousand people 
There, since each bank receives more or less checks on 
other banks, one additional agency is needed to adjust 
accounts between the banks themselves. This is provided 
for in the Clearing House, which is only a kind of central 
bank of deposits for the banks. Eaca bank keeps a de- 
posit of money at the Clearing House. At a certain hour 
every day, messengers present, at their respective desks, 
the checks, drafts and demands received by the several 
banks, the day previous, carefully sorted. By a system- 
atic arrangement, the exchange of checks is all effected 
in ten minutes. Thirty-five minutes more are allowed foi 
the clerks inside to make their entries, report and prova 



I 



THE CLEAKING HOUSE. 319 

feheir work. A little further time is given to the detection 
and correction of errors, and ordinarily the entire business 
of tlie morning is accomplished in one hour. If the de- 
posit of any bank is found to be overdrawn, notice is given 
at once and the deficiency must be supplied during the 
banking-hours of that day. JSTo transfer of money ia 
required except to make up these deficiencies. Transac- 
tions of exchange amounting in one day to more than two 
liundred million dollars have thus been settled in the 
space of an hour, saving much of both labor and danger 
mvolved in the transfer of money from bank to bank. 

Credit fulfills a like office in adjusting exchanges 
between two distant cities. It is to be borne in mind that 
the sales and purchases of every community, as well as of 
every individual must be substantially equal. A man can 
buy only as much as he can pay for, and as much as ho 
can pay for, he will generally hv>.j, and what he produces 
must pay for what he buys. So it is between two cities, 
Chicago and Xew York, for instance. The agricultural 
products sent from Chicago must pay for the goods 
Drought from Xew York. The chief instrument of this 
exchange is credit. Thus produce-dealer A. in Chicago, 
ships to B, his consignee in Kew York, ten car-loads of 
wheat whose market-price, at the sea-board, is five thou* 
sand dollars. When the wheat is delivered, A makes a 
draft on B for the five thousand dollars and deposits it to 
his own credit in his bank in Chicago. The bank for- 
wards the draft immediately to the bank in New York 
ivilh which it keeps open account, and the same day sells 
to C, a dry-goods merchant in Chicago, its draft for five 
thousand dollars to pay for goods received from an im« 
porter in New York. Credit in the form of bank-deposits 
has thus effected an exchange between these distant cities, 
of wheat for dry-goods, with only the labor of writing a 
better or two, and making a few ledger-entries. We ha ye 



320 EXCHAiq"GE. 

taken a Tcry simple transaction out of a tlionsand ex 
changes more or less complicated, jet all accomplished b^ - 
the same means, every day. If the exchanges oetwceia 
two places are equal, the whole business between them 
may be thus adjusted without the transfer of any money. 

If, liowever, the halance of trade between the two placea 
is against Chicago, that is, if the value of the goods which 
Chicago buys of New York, is greater than that of the pro- 
dace which New York buys of Chicago, tlie difference 
must be made up in some other way. It might be by 
Bending money. But perhaps it will be more advantageous 
to bring accounts with another city into the negotiations. 
Thus, if the balance of trade between New York and New 
Orleans is in favor of New Orleans and the balance of 
trade between Chicago and New Orleans is in favor of Chi- 
cago, credit may still fulfill its function through deposit 
accounts in New Orleans. The Chicago merchants may 
pay for their goods from New York in part, by drafts of 
the Chicago banks on the New Orleans banks, based 
on wheat or other products sent thither. So by the in- 
strumentality of credit, in a triple exchange, the products 
of the western prairies may be made to pay for the goods 
Drought from New York. 

The case is essentially the same between the chief trad" 
ing cities all over the world. The foreign trade of Boston 
is mainly an accou7it curreiit with all the cities of tbe 
world with which she has commerce. Charges on one side 
are set off by charges on the other, and a very small 
amount of money adjusts the final balances. Tlie value 
of the tea which Boston imports from China exceeds that 
of the merchandise she sends to that country. But she 
sends to the British West Indies, provisions whose value aa 
Biuch exceeds that of the goods she imports from those 
islands. The West Indies may settle their debt to Boston 
by bills of exchange on London, and these in turn will 



CREDIT A rOEM OF CURREi^CY. 321 

pay Boston's debt to China. In reality, the dour sent 
from Boston pays for the sugar sent from Jamaica to Liv- 
erpool, and the goods sent from Liverpool to China pay foi 
the tea sent from China to Boston, and when the circle is 
complete, the accounts all around are settled. Credit in 
the form of bills of excliange based on bank-deposits is the 
convenient instrument through which all this is effected. 
This manifest advantage to all concerned is greater just in 
proportion as communication and trade between all parta 
of the world are made more free. 

5. Credit, to a limited extent, may he safely put into 
.lie form of currency, and lecome an actual substitute for 
money. The whole subject of currency will be more fully 
presented in another connection. Here, we only state this 
as one of the possible useful functions of credit. It is a 
rule of sound economy to use always the cheapest tools 
wliich will serve well the purpose contemplated. If a 
paper currency, in the form of promissory notes of banks, 
to an amount equal to double the specie which they hold, 
will effect exchanges well and safely, the real value of half 
the gold and silver fixed in money may be devoted to other 
purposes. So far the instrument of exchange is cheap- 
ened and there is an advantage in using credit for a por- 
tion of the currency. TVe recognize the fact and yet the 
statement must be qualified by a caveat. This use of 
credit runs always close upon the line of danger, and needs 
more careful restrictions than can ordinarily be imposed 
or maintained. 

It is to be observed with reference to all these functions 
of credit, that a basis of sound money is indispensable. 
The value of every thing in whatever way it may be ex- 
changed must be estimated by a standard universally rec- 
ognized. We have seen ^hat nothing but real money made 
of gold and silver can furnish the universal standard of 



322 EXCHANGE. 

value required. Eeal money is the ballast of tlie slilp of 
trade. Credit furnishes the sails. Any ballast that easily 
shifts in a storm is sure to bring danger to the ship. 
Hence, the more fully credit is employed as an instrument 
of exchange, the greater the necessity that money, the 
standard of value, be as invariable as possible. Moreover, 
Lii all the transactions of credit to which we have referred, 
money as a medium of exchange mingles more or less. It 
must be good money, else the whole system of credit weavers 
with uncertainty. The credit which circles the world and 
binds all civilized nations together by the common inter- 
ests and mutual service of universal commerce, must be 
sustained by the all pervading presence of money whose 
value is uniform and stable. Quality in this matter is of 
more consequence even than quantity. The nation that 
robs its money of these qualities of stability and uniform- 
ly with that of the rest of the world, rules itself out ol 
:ree and equal commercial relations with other nations. 

The Mischievous Abuses of Credit. — We must 
"ecognize credit as an indispensable instrument of ex- 
change. But, like every other good thing, it may be per- 
verted and abused so as to be productive of vast evil. The 
Jlusory nature of credit as it springs out of men's hopes 
and builds on prospective rather than real wealth, keeps 
an element of danger always in close connection with its 
legitimate use. It is important therefore, that the abuses 
as well as the uses of this instrument be distinctly appre- 
hended. 

1. Credit is abused when too freely granted. Poor 
human nature is weak and false. Not every fair prom- 
ise is to be trusted. Some proof of character may fitly be 
asked of those who solicit our confidence. The real or 
probable ability of the party trusted, to return at a future 
day, an equivalent for values immediately transferred muai 



ABUSES OF CREDIT. 323 

also be remembered. But some in tlieir eagerness to trade 
and some through lack of judgment or nerve to make tho 
:i'.iscrimination, set aside these rules of prudence. Ilence 
the ledger of the retail merchant shows many an accouni 
neyer settled except by an entry on the debtor side of the 
profit and loss account. Into every little western city, a 
stranger comes occasionally with a stock of goods 'bought on 
credit in New York which are rapidly sold off at very low 
prices, and then the stranger disappears just as his notes to 
the jobber in the commercial emporium fall due. Men 
wonder how such an adventurer obtained credit. Again 
and again have bankers occasion to mourn over their too 
easy allowance of over drafts to men who turn out insolvent. 
Besides the immediate losses involved, such proceedings 
seriously mar the course of regular business ; the honest 
merchant is robbed of his trade by knavish adventurers and 
the community is demoralized ; and many fear to give credit 
to those who really deserve it. 

2. Credit is abused by the wild syecidation of borrowers. 
One may do what he will with Ms own, but when doing 
ousiness with another'' s capital, he is bound to avoid great 
risks. Yet too often we see the borrowed capital recklessly 
thrown out upon uncertain ventures, in utter disregard of 
the creditor's claims. Thus, even the capital of banks, not 
infrequently, becomes involved in the gambling operations 
of the stock-exchange. 

3. Credit is abused by the extravagant living of debtors, 
A young merchant who has stocked his store with goods 
principally bought on credit, has need to husband liia 
gains with strictest care in anticipation of the pay-day soon 
to come. Instead of this, one so situated sometimee 
adopts a lavish style of living, as though his fortune were 
already made when his store is opened and his trado 
begins. It is said that of those who enter the mercantile 
profession, ninety-nine in every hundred fail. The major- 



324 EXCHANGE. 

ity of these failures are caused by rash ventures and ex- 
travagant expenses. 

4. Credit is alused hy confidence operations. Undei 
this head we include schemes of speculation which have 
only credit for their basis, whether organized with the in- 
tention of swindling a credulous public, or projected under 
a temporary illusion by which all concerned are misled. 
In London, a few years ago, with great parade of adver- 
tisements, prospectuses and posters, the " Cooperative 
Credit Bank " was opened to receive deposits. Eighteen 
per cent per annum payable monthly was the enticing rate 
of interest offered. Some persons of eminence were 
named as trustees. To matter-of-fact inquirers, the single 
shrewd manager said that the way he had of handling the 
money in connection with " the Gilbert & Chaudiere gold 
fields " enabled him to realize so large a percentas'e. Ail 
sorts 01 fish came into the net. A Church of England rec- 
tor put in eleven thousand dollars ; a ship-cliandler depos- 
ited five hundred that it might be in a safe place ; a hard- 
working man with a wife and five children sent the bank 
one hundred and fifty dollars, being fifteen years' saving 
out of his scanty pay of five dollars a week, and so on. 
During the two years of the bank's existence, the balance- 
sheets were of the most flattering character and their cor- 
rectness was certified by a firm of respectable accountants 
who took the manager's word for the genuineness of bogus 
acco mts. When the bubble burst, instead of two hundred 
thousand dollars which ought to have been on deposit, the 
receiver of the bank found the sum of seventy-five cents, a 
sample of gold dust and a quantity of mining shares. 

The wild speculations in western lands so rife in our 
country in 1836, furnish examples of the other kind of 
operations. Hundreds of ministers and other good people 
were easily drawn to invest their savings in a scheme pro- 
jected by an eminent Amfiican divine, for endowing a 



ABUSES OF CEEDIT. 325 

college in Missouri by the purchase and sale \u>J f^esten* 
lands. It was confidently expected that the money ad- 
vanced would prove a profitable investment for each of the 
contributors, and at tne same time provide a lich endow- 
ment for the college. Without deception or fraud, the 
scheme failed ; the money paid in was all lost and further 
pledges unfulfilled involved some in expensive suits at law. 
The sufferers waked from their fondly cherished dreams, 
wondered at their own delusion and learned how treacher- 
ous a thing is credit abused. 

5. Credit is abused by the over-estimate of assets, some- 
times for purposes of fraud, sometimes through simple 
self-deception, every man desiring to see the bright rather 
than the dark side of his business prospects. A Eegister in 
Bankruptcy recently prepared a list of over a thousan(f 
assignments made within two years. It exhibits enormous 
discrepancies between the nominal values presented and 
the values realized, one estimate of $300,000, yielding but 
$12,000, another of $800,000, shrinking to $24,000. 
This difference is explained in part, by the natural effect of 
sudden and forced settlements in a time of general depres- 
sion, which always causes a shrinkage of assets ; but evi- 
dently a larger part is due to fraud or delusion in the esti- 
mates. The list furnishes also significant illustrations of 
the looseness with which credit is granted on the most 
slender basis. 

6. Credit is abused by the betrayal of trusts. This 
item in the category needs only to be mentioned. It is 
sadly illustrated by recent failures of Savings Banks and 
Insurance companies, and the sudden collapse of fairest 
reputations. Presidents perjure themselves, swearmg to 
false statements ; notes of stockholders are reckoned a? 
part of cash capital ; collateral securities held in pledge are 
aaed as the basis of new loans ; and one whose charactei 
was never suspected, borrows money at will on stock- cer- 



326 EXCHANGE. 

fciScates raised by Iraudulent changes of figures, to pass foi 
tenfold their true value. 

"7, The most sweeping and miscMevous abuse of credii 
appears in the excessive issue of Credit Currency. Of this 
we shall speak more fully hereafter. We do but name it 
in this connection as a most subtle and dangerous disturber 
of all the processes of exchange. 

Some of the mischiefs caused by these abuses of credit 
must be briefly noticed. 

a. From this cause proceed ruinous fluctuations of 
prices, Mr. Mill says, '' The amount of purchasing powei 
which a person can exercise is cornposed of all the 7noney in 
Ms possession or due to Mm, and of all Ms credit,'''' and 
again, " In a state of commerce in which much credit is 
habitually given, general prices at any moment depend 
much more upon the state of credit than upon the quan- 
tity of m.oney." In the ordinary course of business, prices 
are regulated by the simple ratio of demand to supply. 
Suppose now, a far-seeing merchant anticipates an unusual 
demand for certain commodities. Desiring to secure to 
himself as large a profit as possible from the consequent 
rise of price, he begins to purchase largely beforehand. 
He invests first his ready money, then all he can collect 
that is due to him, and at last pushes his credit to the ut- 
most. This creates an uncommon demand at once. The 
market feels it and prices begin to rise. Others begin to 
have large expectations and follow the example. Thus a 
general demand is created which sends up prices rapidly, 
and the thing expected seems to be realized. The move- 
ment is not confined to certain articles, for the spirit of 
rpeoulation is contagious. Trade becomes active in all 
departments, and all, desirous to get a share of the golden 
harvest, push out tlieir whole purchasing power to ita 
extrem*^ limit. Prices rise bevond all reasonable groundg 



EYILS OF ABUSE OF CEEDIT. 32? 

find still the illusion is cherished. But at last the spell is 
broken. Then they who were so eager to buy are anxioua 
only to sell. In the rush of goods into the market, prices 
go down faster than they went up, and the bubble of specu- 
lation bursts, and with it, in the case of not a few, money 
credit, all are gone. Something like this might happen^ 
if purchases were made with ready money, but in that case, 
there is a fixed limit to the fund available for purchases. 
But by an extension of credit, men draw upon an ideal 
fund which is unlimited. From such fluctuations even 
the most prudent must suffer to some extent. The abus6 
of credit is the chief originating cause of commercial crises, 
panics oMd revulsimis, 

h. The losses ivhich e7isue from the abuses of credit en- 
hance the risks of business, and for those risks the com- 
munity must pay. To make good his bad debts, the retail 
merchant must get a larger profit out of his paying cus- 
tomers. In speculations carried on by credit, the apparent 
gain of one involves another's loss, and the aggregate loss 
of the community surpasses all the gains made. 

c. These abuses of credit tend to turn all trade into a 
gatne of chance. Here and there a splendid prize is won. 
It dazzles the eyes of men. They turn from the patient 
toil and prudent thrift, which are the conditions of a slow 
Dut sure success, hoping by some bold venture to jump at 
once into a fortune. The general usage makes it difficult 
for those who would, to conduct business on other princi- 
ples. 

d. Through familiarity ivith failures and frauds, the 
moral sense is deadened with respect to a debtor's obligations. 
By the abuse of credit, the standard of honesty is lowered. 
Public sentiment becomes tolerant of delinquencies, eva 
sions, downright defalcations. One who is known to have 
enriched himself by repeated failures, hardly loses his 
etanding in society. Hence, a scrujoulous conscience with 



328 EXCHANGE. 

respect to a promise to pay, is pitied rather than praisetl, 
[t is deemed of little importance even to a reputable Cliris- 
tiar profession ; for a man yersed in the ways of the 
world, it is a troublesome appendage. Why then should 
one restrict his indulgences in order to pay his debts and 
aiaintain his integrity : 

e. Tlie abuse of credit tends to relax the lands of Jau 
for the enforcement of contracts. In consequence of this 
abuse, the debtor class is multiplied, many without special 
fault of their own are borne on by the general tide, till 
their credit is extended quite beyond their ability to pay ; 
delinquency is regarded as more a misfortune than a fault, 
and so strong are sympathies for so-called unfortunate 
debtors that the collection of debts by legal process becomes 
difficult, almost impossible. The same cause leads to mis- 
chievous legislation which impairs the force of mortgages 
and other securities, and by granting large exemptionSy 
furnishes the means of gross evasions and a temptation 
to fraud. 

The remedy for these manifold evils must be found 
chiefly in a change of public sentiment and common prac- 
tice. While we are writing, it comes as the lesson of the 
hour, emphasized by the universal depression of business 
and consequent extreme distress in many quarters, that 
the usages of trade must be changed so as to lay chechs 
upon the unlimited extension of credit in the case of indi- 
viduals, of corporations, of cities, of states. It is of far 
more consequence to healthful industry and trade that 
Americans return to the iuisdo7n and prudence of '^ the 
fathers" than that the much talked of ''dollar of the 
fathers^'' be restored. Commercial credit, like woman's 
chastity, needs to be sacredly guarded. Its brightness and 
worth are marred by one blot of dishonor. The fault may 
b@ condoned, but confidence is impaired ; the wound maji 



MAXIM OF CAUTION. 329 

be healed, but the scar remains. The maxim of caution 
put into crude verse and current in New England, a hun- 
dred, years ago, is good for all men, for all countries^ fo2 
®ll times : 

Ever thy Credit keep, 'tis quickly gone^ 
B^ia^ got by many actions, loei bj 



CHAPTER XXII 

BAKKS AND CUKEENCY. 

The word Bank is of Italian origin. In the infancy ol 
European commerce, the Jews in Italy were wont to as- 
eemble in the market-places of the principal towns, seated 
on benches, ready to lend money ; hence the term hank 
from hmico, a bench. When any of these money-lenders 
failed, his bench was broken, and so we have the word 
hankriipt. 

Banks are Agents of Credit. — We have already 
Been how extensiye and important are the functions of 
credit in the exchanges of the world. Its complicated 
operations require special attention and management. 
The economical principle of division of labor demands 
that some persons should make it their business te develoj 
and direct this part of the machinery of exchange. Banks 
are institutions devised for systematizing credit, and 
bankers are or should be well versed in the operations of 
credit. 

Three distinct Offices of Banks are to be recog 
Bized. 

1. Tlie collection and custody of Money-deposits to be 
the basis of credit in trade. If all the exchanges ol a 
community were to be effected by money alone, every 
husmess-man must have in his own keeping a considerable 
amount of money. To keep this secure from robbery an-l 
loss would involve no little pains and expense. Much 



THE OFFICES OF BAKES. 33\ 

iabor would also be required to count the specie paid and 
received, and the cost of doing business would thus be in- 
creased. Suppose that, instead of every man's doing all 
this foi himself, the business-men agree that one person 
hall procure a safe repository for all the specie in the 
aeighborhood, and become responsible for its safe-kecking 
and transfer, as ordered. This would provide a bank and 
a banker for the community. Then as each deposits what 
he receives and draws for what he pays, credit is made to 
effect exchanges in the manner heretofore described, an-i 
the money lies for the most part secure in the vaults of tha 
banks. From this simple nucleus, the system may be ex- 
tended so as to combine a number of banks in a large city 
the banks of cities in different parts of a country and the 
banks of different countries. At the same time such an 
institution would render important service in gathering 
up a great deal of capital which would otherwise be scat- 
tered and useless in the hands of persons unable to em 
ploy it, and making it available for the office next to be 
named. 

2. The second office of lanJcs is to loan and discount 
both money and credit. We have seen that for the increase 
of wealth, labor and capital must be combined. But 
often, one man has the capital and another the capacity to 
labor. It is the office of the bank to bring the two ele- 
ments together in the most expeditious and conven'-ent 
way. He who has the capital, may ^ut it into the banli 
to be loaned for him. He who needs the capital can go 
directly to the bank and borrow. The banker, devoting 
limr^elf to this occupation of loaning, becomes expeit in 
uch negotiations, keeps himself informed as to the char- 
acter and responsibility of borrowers and understands all 
the legal forms necessary to a valid contract. 

The terms loan and discount mean essentiallv the same 
things but indicate two distinct modes of lending adopted 



832 EXCHANGE. 

by different classes of banks. Saving s-hanlcs receive on 
deposit the small savings of great numbers of people o[ 
limited means, make loans generally on long time, secured 
by real-estate or other ample sureties, and collect the in- 
terest semi-annually, as it accrues. Commercial-hanki 
gather funds of the wealthy as their capital and the tern* 
j'orary deposits of men in active business, and make their 
loans for short time, sixty or ninety days, on personal 
security, taking interest in advance, as a cliscou7it or de- 
duction from the principal sum borrowed. Often also, the 
amount thus borrowed is simply credited to the account of 
the borrower, to be drawn on as other deposits are by 
checks, without the withdrawal of any money at all. It 
oecomes thus, in whole or in part, a loan of credit rather 
than money. 

3. The third office of hanJcs is to issue promissory notes 
for general circulation as substitutes for money. Thia 
creates a paper currency. In the simplest method of 
doing this, the bank loans not the specie which it holds, 
but its own notes payable in specie, receiving in return the 
iates of individuals, guaranteed by endorsers, for the 
amount loaned, to be paid at a future day. From this, a 
two-fold advantage is derived. In the first place, these 
notes become a medium of exchange more convenient than 
specie, because lighter and more easily and safely carried 
about. If the amount of notes issued is just equal to the 
amount of specie in the vaults, the holders would always 
have a double security, viz., the specie in the bank and 
the obligations of those to whom the notes were loaned. 
The law often makes individual stockholders also liable 
for an additional amount equal to that of their stock. Pa- 
per in the form of checks of individuals on a bank of do- 
posit, might be made to circulate to some extent as a 
Bubstitute for money, but ft could be only as each man's 
character and standing were known. The bank is a public 



THE OFFICES OF BANKS. 333 

mstitution in which all have confidence and hence its notes 
are readily accepted by all. 

The other advantage is that paper, a substance much 
cheaper than gold and silver, may, within certain limits, 
fulfill all the functions of an instrunxnt o* exchange, and 
j>ermit a portion of the precious metals to be applied t. 
other uses. There is economy in thus cheapening the 
instruments of trade, provided the restrictions are such 
that their fitness for the required service is not impaired. 
The bank-notes may safely be issued in excess of the specie 
held in reserve ; for they can never all be presented at 
once, and the notes of borrowers falling due day by day, 
may be relied on to provide in part for the redemption of 
the notes as they may be presented. This view is sound 
provided the safeguard of fixed limits to the amount of 
notes thrown into circulation is rigidly maintained. 

Banks, in the fulfillment of these ofiices, confer another 
incidental benefit, especially in a new country. As public 
corporations of known character, they offer inducements 
or the introduction of foreig7i capital. In a young and 
growing country, capital is scarce and at the same time, 
more productive than in older countries. The higher 
rate of interest offered is a strong attraction to capital 
from abroad, and banks properly established provide d 
safe channel through which it may come in. 

Through these offices, banks have also rendered ve-y 
important services to the finances of sovereigns and stales, 
isteadying and strengthening the bands of government and 
furnishing efficient aid in the emergencies of war and of 
great national enterprises. 

A few facts drawn from the history of banks wiU 
further illustrate their nature and operations. 

The Bank of Venice, founded A. D. 1171, was the e«p- 
liest banking institution in Europe. Ifc was based upon % 



334 EXCHANGE. 

forced loan of tlie Eepublic. The reigning duke, in ordej 
to raise means for carrying on a crusade, obliged a numbei 
of the most opulent citizens to advance funds to a " Chain/- 
her of Loa'us" to which the contributors were made cred- 
itors^ receiving a yearly interest of four per cent. The 
funds so deposited could not be withdrawn, but were trans- 
erable on the books, at the pleasure of the owner. It 
provided also for the safe custody and transfer of special 
deposits. The bank credits, in form like modern certifi- 
cates of deposit, were at a premium for purposes of trade. 
This bank of Venice served wxll the exigencies of the 
state, and was of great advantage to its wide-spread com- 
merce. Its operations, thus confined to the regulation o 
credit, as based on deposits, were maintained in full vigoi 
for four hundred years, and its existence continued till 
the year 1797, when it fell, with the city itself, at the con 
quest of Italy by Napoleon. 

The Bank of Genoa, established in 1407, also to mee- 
the necessities of the state, was the first to issue circulat- 
ing notes. These, however, were not made payable to 
bearer, but passed only by endorsement. They were 
probably issued only for large amounts and employed in 
large transactions. 

The Bajik of Amsterda7n, established in 1609, was the 
first instituted expressly to promote the interests of com- 
mercc. Its primary object was to remedy the inconvenience 
arising from the great quantity of clipped and worn coin 
in circulation. It was a bank of deposit only, the credit 
given in the bank-book for coin deposited was called bank 
money. The regulations of the country directed that all 
Dills drawn upon or negotiated at Amsterdam, above a 
certain amount, should be paid in bank-money. This 
obliged every merchant to keep an account at the bank, 
and hell its money at a premium. The Ba7ilc of Hani- 
hirg was established ten years later on the same plan. 



BAN'K OF E]S"GLAKD FIKST ISSUES BAKK BILLS. 335 

Its deposits, however, were in the form of bars of silver 
bullion. Both these banks professed to lend out no part 
of their deposits. But the guardians of the bank of 
Amsterdam proved at last unfaithful to their trust in this 
respect and caused its ruin. The bank of Hamburg con- 
tinues to this day, commanding the highest confidence of 
the commercial world. 

The Banh of England, founded in 1694, was the first 
institution that was authorized to issue taiih Mils payable 
to 'bearer at sight. It has been from the outset, an agent 
of credit for both the finances of the government and the 
service of commerce. Its entire capital, now amounting 
with accumulated profits to eighty-eight million dollars, is 
permanently loaned to the government. It fulfills all of 
the offices we have named, being a bank of deposit, of loan 
and discount, and of circulation. It can issue seventy 
million dollars of notes, (none under five pounds, or 
twenty-five dollars) against that amount of government 
securities set apart for the purpose. It may also issue 
notes beyond this, against an equal amount of gold and 
silver held in reserve. Its notes are practically a legal ten- 
der everywhere in the kingdom except in payments by the 
bank, though the constitutionality of the law in this 
resj)ect has been questioned. No note returned to the 
bank is ever re-issued. The bank is itself a private corpo- 
ration, but it has the state for a partner, and the two 
stand together for mutual support. It acts as the agent 
of the government in managing the national debt. Dur- 
ing the long Napoleonic wars, it rendered indispensable 
aid to the government, and under the pressure of urgent 
necessity, it was allowed in 1797, to suspend specie pay- 
ment, and the suspension continued through twenty-five 
years. In England, outside of London and its vicinity, 
there are many joint-stock banks which also issue notes of 
circulation. But the bank of England is the great regu- 



336 EXCHANGE. 

lator of credit in all forms. It is the most powerful of all 
modern banks and its influence affects the commerce of all 
nations. 

The Scotcli banking-system is peculiar in its method 
9f giving what are called cash-credits. When a man 
wishes a cash credit, he finds a bondsman, who promises 
to indemnify the bank for all that it may lose, by loanmg 
to him within a certain sum ; or else he places real estate 
in the power of the bank, to a sufficient amount to render 
it secure within the sum which he wishes to borrow. The 
bank then opens with him a cash account, or allows him 
to draw for any sum within the specified amount. IIo is 
charged interest only for the amount which he borrows. 
As fast" as he is in funds, he deposits all he can spare, in 
the bank, and for everything thus deposited, he is allowed 
interest ; so that his interest on deposits always diminishes 
the interest on his debt. Thus he borrows and pays, suc- 
cessively, and at stated seasons, the accounts are adjusted 
This system is especially favorable to men of small means, 
and furnishes full security to the banks. 

The Bank of France is like that of England, a private 
corporation, but unlike that of England, it does not 
directly manage the revenues of the state ; but by lending 
freely to the government, it has borne it safely through 
extraordinary exigencies. Founded in 1800, since 1803 it 
has had the exclusive privilege in Paris, and since 1857, in 
France, of issuing notes payable on demand. Its notes 
are a legal tender in payment of all debts, public and 
private. During the revolution of 1848, and again on the 
breaking out of the war with Prussia in 1870, it was ar* 
tliorized to suspend specie payments. But so wisely were its 
affairs managed and so faithfully did the government keep 
its promises, that notwithstanding it has loaned to the 
government since 1870, six hundred million dollars, ita 
notes have, except for a brief period, remained at par and 



FIRST BANK AUTHORIZED I'N UNITED STATES. 337 

now, January, 1878, it is resuming specie payment. The 
secret of its soundness and strength is the policy of keep- 
ing large reserves of coin in proportion to its circulation. 

The first Bank authorized in the United States, origi 
iiiited in a union of citizens in Philadelphia, in 1780, to 
supply the army with rations. They were allowed to form 
a bank and to issue notes to buy the articles required. In 
December, 1781, this bank was chartered by the Congress 
of the Confederation, under the name of the Bank of 
North America, with a capital of four hundred thousand 
dollars. The next year, a charter was also granted to the 
company by the legislature of Pennsylvania. It still 
exists, being now one of the national banks of our coun- 
try. In three or four of the other states, banks were soon 
after chartered in the same way. 

The new constitution under which the government 
was organized in 1789, contains the clause that no state 
shall '^ coin money, emit Mils of credit or make anything 
hut gold and silver coin a tender in payment of dehtsJ* 
This clause was no doubt, designed to prohibit the issue of 
a paper currency, from the evils of which the country had 
suffered severely. Under it, however, two questions have 
been raised. First, can a state authorize hanks to do what 
it cannot do itself ? Second, can the national government 
do what the states cannot do in respect to " bills of 
credit ? " Both questions have been answered in the 
affirmative. Bank notes are not considered "bills of 
credit" in the sense of the prohibition. And the general 
•gorernment has been justified by the Supreme Court in 
making its notes, the greenbacks of to-day, which are 
simply "bills of credit," legal tender. Great numbers of 
State hanks have accordingly been authorized and two 
hanks of the United States have been chartered hj 
Congress for limited periods. All of these banks fuliSlled 
the three offices named, under various regulations such ai 



338 EXCHAITGE. 

diflerent legislatures saw fit to imposej and hence were 
very divtrse in their character and in the quality of the 
cr rrency issued by them. 

The old State hanks were created by special charters oi 
n corporation from the legislatures, and had more or less 
ihe character of monopolies. Sometimes the banking com- 
pany was required to pay a bonus to the state for its pecu- 
fiar privileges. The early banking of New England in 
the first years of this century was very loose. Each 
charter named the amount of capital stock to be provided. 
But in many cases, subscribers to the stock, instead of 
paying in cash, simply gave their notes for the amount of 
their shares. On this frail basis, a bank issued circulating 
notes freely, sometimes in denominations as low as twenty- 
five cents. Such a currency necessarily drove out specie, 
lill but little was left in the region. That little was 
moved from bank to bank to keep up a show for the visits 
of inspectors. In due time, a collapse came. One bank 
m Rhode Island, founded in 1804, had a nominal capital 
of a million dollars. Of this, less than twenty thousand 
dollars was ever paid in. The directors, soon after begin- 
ning business, withdrew what they had paid in, leaving 
cmly about three thousand dollars. This was afterwards 
absorbed by one director, who bought out his eleven col- 
leagues, paying them with bank funds, and then borrowed 
of the bank over seven hundred thousand dollars. When 
it failed, this bank had in specie $86.46, and its outstand 
ing bills were estimated at nearly $600,000. Similai 
frauds were committed in Michigan and other western 
states, from 1833 to 1840, with like mischievous results. 
This mode of doing things was then fitly termed ^^ wild^ 
cat hanking." 

The crash in New England led to the passage of stric 
banking laws and to the general demand for higher in* 
tegrity in the management of s^^^H institutions. Thua 



FREE BANKING SYSTEM. . 339 

many of the state banks of that section were placed on a 
sound basis and have maintained their credit unquestioned 
to the present time. 

Various measures have been adopted from time t 
t'me for the purpose of keeping bank notes good. Ths 
Suffolk lank sy stein of Massachusetts required each coun- 
try bank to keep a certain amount of specie on deposit 
with the Suffolk bank in Boston for the redemption of its 
notes, and bound the banks together for mutual support. 
The Safety-Fund act of New York required each bank to 
put into the hands of the State Treasurer an amount of 
iSpecie equal to three per cent of its capital stock. The 
pafety-fund thus gathered was held to make good the debts 
of anv bank that misjht become insolvent. This made it 
a matter of common interest for the banks to watch over 
and sustain each other. 

The Free hanhing system was introduced in New York 
m 1838, as a substitute for the method of granting special 
charters. This allowed any number of persons to form a 
banking association on meeting certain prescribed condi- 
tions. Under this system, the redemption of bank-notes 
was provided for by the deposit with a bank- comptroller 
appointed by the state, of stocks of states and of corporations 
and bonds and mortgages, the issue of each bank being 
limited by the amount of securities held on its account 
The value of this security would of course vary with the 
chanictei of the deposit. This system was adopted quite 
generally by the states west of New York ^nd continued 
j»ntil the present national bank system. 

Two Banks of the United States have place in on. 
nation's history; each continued for a period of twenlj 
yearSi The first, projected by Alexander Ilamilton, was 
sharterod by act of Congress in 17yi, ivith a capital ol 
$10,000,000. Its charter expired in 1811, and was no! 
renewed. The second was chartered in 1816, with a capi- 



340 • EXCHANGE. 

tal of 135,000,000. A Dill for the renewal of its chartei 
passed both houses of Congress, but was vetoed by Presi- 
dent Jackson, and in 1836, it was closed as a government 
institution. Each of these banks rendered important ser- 
vice in the management of the national finances and as a 
bank of deposit, discount and circulation, helped to steady 
credit and to promote exchanges in all parts of the coun- 
try. In the discussions concerning the re-charter of the 
bank, however, it plainly appeared what a political power 
Buch a corporation might become. The bribery, misman- 
agement and bold specalations with which the last bank 
closed its career, under a charter from the state of Penn- 
eylvania, also clearly showed that such an institution 
might work mischief on a scale proportioned to its great- 
ness. The people have therefore acquiesced in the decree 
which terminated its existence, and it is not likely tha 
another bank of the United States will soon, if ever be or- 
ganized. 

Under the system of state banks, frauds and failures 
were frequent, entailing heavy losses on the holders of 
bills, and much distrust in business circles. Exchanges 
between distant parts of the country were thus embarrassed. 
For many years the premium paid in Wisconsin for New 
York money or drafts was from three to five per cent, add- 
ing so much to the prices of all goods brought from the 
East. 

The existing National Banlc system was established in 
1833^ by act of Congress, and the next year it was put 
snder the charge of a bureau of the Treasury Department, 
the chief officer of which is the comptroller of the cur- 
cency. Under this act, a national bank may be organized 
by any number of persons, not less than five, the capita^ 
in any instance, to be not less than $100,000, — except that 
in cities containing a population not exceeding six thou 



JTATIOKAL BAi^K SYSTEM. 341 

sand J banks may be established witli a capital of not lest 
than $50,000. The capital stock in cities having a popu- 
lation of fifty tlioiisand must be not less than 1200,000. 
NTot less than one-third of the capital must be invested in 
United States bonds, upon which circulating notes may b€ 
issued equal in amount to ninety per cent of the current 
market value, but not to exceed ninety per cent of the par 
value of the bonds deposited. The notes officially certified 
are receivable at par in the United States in all payments 
to and. from the government, except for duties on imports, 
interest on the public debt and in redemption of the 
treasury notes. They are redeemable on demand in lawful 
money of the United States. 

Soon after this system was instituted, an act of Con- 
gress imposed a tax of ten per cent on the notes of state 
banks used for circulation after August 1, 1866. This, of 
course, excluded these notes from further circulation antf 
most of the old state banks reorganized under the national 
system. The present bank currency of our country 
theretore, consists of notes of national banks which are oi 
uniform value in all parts of the country and the payment 
of "^iiich is guaranteed by the United States. The whole 
amount of these notes which could be thrown into circula- 
tion was at first limited to $300,000,000 ; subsequently it 
was raised to $354,000,000, but it is now unlimited. The 
amount actually in circulation, Nov. 1, 1877, was nearly 
1317,000,000. These banks receive deposits, sell bills of 
Ijchange and loan money at the rate of interest allowed 
by law in the states where they are located. For the cir- 
julating notes, this system provides all the security which 
the credit of the United States can give, but offers none for 
deposits and other liabilities except that all shareholders 
are held individually liable to the extent of the amount o^ 
their stock, in addition to the amount invested therein. 
In case of the failure of a national bank, a receiver maj 
be appointed by the comntroller to wind up its affairs. 



343 EXCHANGE. 

Private Banhing houses exist in all parts of tlie conn, 
try, which receive deposits, make loans and negotiate ox 
cbango, but issue no circulating notes. Some of these 
have gained a character and standing and extent of busi' 
ness fully equal to those of strong banks. Their credit 
rests upo]i personal integrity, wise management and large 
resources accumulated through years of devoted industry. 

Savings Banks, for the most part, without capital, sim- 
ply receive and loan deposits. It was estimated in Janu- 
ary, 1877, that the savings banks of our country held de- 
posits amounting to one thousand million dollars. The 
entire banking business of the country, at that date was 
represented by seven hundred million of capital and two 
thousand million of deposits. 

The Liabilities and Resources of Banks under 

the present system, set down in distinct statement, will 
farther illustrate the principles and usages of these insti- 
tutions. 

The Liabilities are embraced in the following items : 

1. Tlie Cajntal Stock, which is the amount paid in aa 
the basis of business, and for which the bank is responsi- 
ble to the several shareholders. 

2. The Circidation, which consists of promissory notes, 
signed by the officers of the bank, payable on demand, and 
circulating in the community as substitutes for money. 

3. Deposits, which includes all sums standing on the 
hooks of the bank to the credit of individuals, partnerships 
or corporations, that are payable on demand. 

4. Balances due to other Banks. This is a form of 
deposits incidental to the necessary open accounts of bank 
with one another, but they deserve a distinct notice on 
account of a peculiar danger which attends them. The 
exigencies of business require that the small interior banks 
ihould all have funds deposited with leading banks in th€ 



BANK EESOUECES. 343 

great centres of commerce to draw against. The bauta 
of the o^reat cities accumtilate liabilities of this kind to a 
large amount. In any emergency, these deposits are lia« 
ble to be drawn out so rapidly as to bring on oi aggravate 
a commercial crisis. 

5. Surplus funds or Reserves, held to strengthen the 
bank against contingencies. The national bank ac* 
requires each bank statedly to carry a portion of its net 
profits to such a fund until it amounts to twenty per cent 
of the capital. The reserve is really an addition to the 
capital, and belongs to the stockholders, enhancing the 
market value of the stock. Hence it is properly reckoned 
witli the liabilities. 

6. Undivided Profits and unpaid Dividends, As the 
Dusiness of a bank runs on, there is more or less of cur- 
rent profit undisposed of, and some dividends are uncalled 
for. For all these the bank must hold itself accountable. 

7. Miscella7ieous liaMlities embracing little obligationi 
Df various kinds not classified. 

The Resources of banks may be distributed in the fol- 
jQwing classes : 

1. Loans. This item includes all that is due a bank 
from its customers for discounts and advances represented 
by notes or other obligations, payable from day to day aa 
they mature. 

2. United States Bonds deposited with the comptroller 
of the currency to provide for the ultimate redemption of 
the bank-notes. These are held sacred for that liabilityj 
but have a value more than sufficient to cover it. 

3. United States Bonds and other stocks, bonds, etc., 
purchased and held for investments, that the means of the 
bank may be productive and at the same time more readily 
available than they would be if loaned to individuals, h 
portion of the Reserve is often held in this form. 



344 EXCHAJ7GE. 

4. Balances due from otlier Banks, This corresponda 
to the similar item on the other side, and is incidentul to 
she open accounts between banks. 

5. Real estate, inchiding a place for doing business and 
nch other property of this kind as may, in settlement with 

°ts debtors or otherwise, come into the possession of a bank. 

6. Exchanges and Casli items, embracing checks, sight 
drafts and bills of exchange, more or less of which are each 
day found with a bank in transitu, 

7. National lank notes and Legal tender notes held to 
meet daily calls for currency. 

8. Legal tender notes and s2oecie, held for the home re 
demption of circulating notes. 

9. Miscellaneous Resources, a general term for yarious 
assets which find no place in the previous classification. 
With a sound bank, the amount under this item is small. 

In a regular bank statement, the liabilities and re- 
«ources thus presented, always balance each other, and the 
terns on either side show the actual condition of the bank. 

The Sources of Profits of Banks. — 1. The chief 
profit of a bank comes through Interest received. Under 
the national system several distinct sources of interest may 
oe noticed. 

a. Interesi on United States londs, amounting to at 
least one-third of the capital, deposited with the comp- 
troller of the currency. This at from four to five per cent 
inures to the benefit of the bank, unless its waning credit 
compels the comptroller to retain it for additional security. 

J), Interest on the amount of circulating notes issued in 
loans, at the legal rates. This is so much added to inter 
est on the bonds, except for the surplus of bonds above the 
amount of notes. 

c. Interest on the remai7iing Capital^ loaned to cufr 
tomers or held in produp>^ve stf^cks. 



CURKEKCT. 345 

d. Interest on a portion of the deposits held. Since 
generally the amount of deposits brought in each day is 
about equal to the amount withdrawn, a bank may 
safely loan a portion of its average deposits. The sum 
total loaned by a bank is thus often two or three times 
the amount of its capital stock. Banks are strongly 
tempted at times to carry this loaning of deposits beyonj 
due bounds so as to endanger the interests of both depos- 
itors and the banks themselves. 

2. Premiums on Excliange. A small percentage, vary- 
ing with the state of the market, is charged for drafts or 
bills of exchange on banks in other places. The aggregate 
of these premiums is considerable, and for the most part 
is clear profit. 

3. Commissions for Collections, Banks, as institutions 
well known and of established credit, often have sent to 
them claims to be collected. As agents of credit in this 
form, banks assume no risks, but charge a small percent- 
age for their service. 

With prudent management, the profits of banks are 
sure and compare favorably with those of any other busi- 
ness. Of late, there has been some drawback from heavy 
taxation of these institutions by both the state and the 
federal government. The undue expansion of loans in 
order to increase profits, involves the danger of throwing 
the centre of gravity outside the base, with a consequent 
downfall. 

Currency. — In its broadest sense, this term embraces 
whatever in the usages of trade passes from hai,d to hand 
as a medium of exchange. Following the distinclaona 
made by Mr. Amasa Walker, we may specify four kinds oi 
curreicy 

1. Value Currency. This consists of coined money, 
made of the precious metals, and having in itself i uni- 



348 EXCHA2*fGE. 

versally recognized value wliich makes it always acoeptecL 
It needs no security except safeguards against counterfeit- 
ing and debasement. Respecting this, nothing need be 
added to what has been ah'eady said in treating of Money, 

%. Mercantile Currency. This is a term adopted bj? 
Mr. Walker to signify promises payable on demand, issued 
by responsible parties for the payment of which in full, 
coned money oi bullion of equal amount is held in trust 
by the promisors. This adds to the security of hard 
money the conve^iience of paper to represent real values. 
Stich are the notes of the bank of Hamburg, and such 
were those of the bank of Amsterdam, in its best estate. 
That such a currency is both practicable and very service- 
able is proved by actual experience in the past. It would 
need no restriction upon its issue. It would take care oi 
its own reputation and would always be a satisfactory ten 
der in payment of debts, without any enactment of law to 
that effect. It would also furnish ample scope for profita- 
ble and safe banking. It may, however, be questioned 
whether such a currency, with all the specie that could be 
brought into use by its side, would be sufficient for the 
requisitions of modern trade. Since credit has complica- 
ted itself so extensively with the currency of all the lead- 
ing commercial nations, it will probably be impossible now 
to bring the commercial world back to the adoption of this 
basis exclusively. To attempt some approximation to ifc 
may be successful so far as to yield real advantages. 

3. Mixed Currency. This is formed of written prom- 
ises to pay specie on demand, issued in evcess of the actual 
amount of specie held by the promisors for their redemp- 
tion. It is called mixed because its basis is partly coined 
money of real value at hand, and partly ci edit in the form 
of notes discounted by the banks which throw it into cir- 
culation. The presumption is that the payment of cus- 
tomers' notes as they mature, will keep the bank provided 



r 



MIXED CUEEEi;rCT. 347 

with whatever additional means may be required above 
the specie in the vaults, to meet the circulating notes as 
thcv are presented. The currency of the old state banks 
of our coiijutry was wholly of this character. Its securitj 
lepended on the proportions of the specie and the credit 
•overally to the amount of currency issued. In som« 
states, these proportions were regulated by law so as to 
secure general soundness of this currency. In the so-^ 
called " wild-cat " banking before described, all such ])re- 
cautions were wanting, and the results could only be dis- 
astrous. In this category of mixed currency, our present 
national bank notes must also be placed. They are pecu- 
liar only in this respect, that the credit which enters into 
their basis, is the credit of the nation, aitd its strength is 
supposed to be such that only a small prc^.^3rtion of specie 
will need to be kept in store, even when specie payments 
shall be generally resumed. 

In considering this kind of currency, il is important to 
note the distinction between its ultimate ademption and 
its immediate convertibility. Legitimate kmking would 
always show a large margin for the ultimate redemption 
of the currency ; and yet this might be with very insuffi- 
cient provision for its immediate convcrtiL'City. This 
point is well illustrated by Mr. Walker ' in soa.t L^tatistica 
respecting the condition of the state banks in c\*i country 
on the first of January, 1860. At that date the ii?i'>>t'li«iiirt 
liabilities of the banks of the United States were-- 

Circulation ..$207,102,47? 

Depoeits 253,802,129 

Dae othier banks ..., 65,932,918 

Otlier liabilities 14,661,815 

$531,49933* 

Immediate resources : 

Specie $a3,594,537 

Cashitems 19,331,521 

Notes of other banks 25,502,567 

Due by other banks 67,235,457 

$195,664,06* 

Kxeess of immediate liabilities over immediate rcsoorces. . . . $335,835,257 



348 EXCHAiq^GE. 

It is GTiient from this statement that a speeia run 
npoa the banks for the payment of circulating notes or oi 
deposits, or both, (for both are apt to move togethe]) 
would reveal their inability to meet their obligations. Yet^ 
it the same date, the banks held the following assets af 
Sidmate resources : . 

Loans $691,945,580 

Stocks 70,344,343 

Real estate 80,782,131 

Other investments 11, 123, 171 

Total $804,195,225 

Deductins: the excess of immediate liabilities as 

above 335,835,257 

Surplus $468,359,968 

This margin seems quite sufficient to guarantee pei 
fectly the ultimate redemption of the currency. The 
trouble is that under a panic the banks cannot realize 
funds from their assets, fast enough to meet the calls for 
the redemption of their notes and deposits. If they could 
do so, the necessity of declining to renew their loans 
would produce a commercial crisis, and cause a genera) 
Dankruptcy of men in business. In such exigencies, the 
only relief is for the banks to suspend specie payments. 
This is a measure adopted not so much for the relief of the 
banks themselves, as for that of the entire community. 
The banks might perhaps save themselves, but it would 
be at the expense of almost certain ruin to hundreds, anl 
of immense loss to all engaged in trade. The elTcct 
of a suspension is really to gain time for all parties 
to turn assets, curtail credits and bring the operations oi 
msiness on to a sounder basis. Ifc is always an evil but 
often a necessary evil which leads to wholesome resulta 
The undue expansion of credit during a period of suspen 
sion; is an abuse which can only aggravate the mischief, 

Oui national bank system furnishes no certain safe- 



CREDIT CUEEEKCY. 349 

guard against this contingency. Ordinarily, the go rem* 
ment bonds can be converted into cash at once, and so fax 
they are better than the discounted notes of individuals 
for the immediate conversion of circulating notes. But it 
is easy to conceive of an emergency when the credit of the 
government might be impaired or subjected to a special 
strain, so that tlie market would be glutted with bonds. 
Coincident with this, a run on the banks for the payment 
of deposits would be likely to take place and the immediate 
redemption of circulating notes would be quite impossible. 

The mixed currency of England is in some degree 
guarded with respect to this liability by precautionary 
measures of the Bank of England, Its officers have an 
eye continually on the flow of specie. As soon as it ap- 
pears that the stock of specie in the country is diminishing, 
the bank raises its rate of interest. This tends to reduce 
the discounts and is a signal to all of danger and a call to 
curtail credits. As a consequence, the bank of England 
and all other banks of circulation fortify themselves by 
adding to the amount of their specie reserves. Thus, often 
Dy timely precaution, the danger is averted. When on 
the other hand, the amount of specie seems superfluous, 
the opposite course is taken ; the rate of interest is reduced 
and through increased loans, the funds go into circulation. 
The central banking institution serves as a great balance- 
wheel to regulate within certain limits both the currency 
and :redit in trade. 

4, Credit Currency, This consist? of engraved notes 
bearing promises of a government to pay specified sums of 
money, at a distant or indefinite period in the future. 
These by force of law or peculiar circumstances, are ac- 
cepted as money and fulfill its functions. The " Conti- 
nental money " of revolutionary times, the French " Ag- 
signats" of 1790, and the United States treasury notes, 
now in circulation, known as "greenbacks," are examples 



350 EXCHAIvrGE. 

of this kind of currency. It lias no basis but the credit of 
the nation. It is but a symbol of value, and has purchasing 
power only as men have faith in the promise. If the 
course of the government is such as to impair that faith, 
the purchasing power of these symbols declines, until at 
last it utterly fails, as was the case with the American con- 
tinental currency and the French assignats. 

On the face of the ''''greenback''^ before us we read, 
^' The United States luill pay the hearer ten dollars." 
The seal of the United States treasury and the signa- 
tures of the Treasurer and of the Register of the treasury 
certify the genuineness of the promise and bind the gov- 
ernment to its fulfillment. On its back we read, ^^ This 
note is a legal tefider at its par value for all debts public 
and private, except duties on imports and interest on the 
public debt.^' This engraved slip of ]3aper is then simply 
an evidence of debt. As it circulates from hand to hand, 
it can only transfer debts; it cannot pay them. You may 
offer this note to your butcher in payment of his bill. He 
is obliged to accept it, but by the transfer, the government 
just takes your place as his debtor. It is not itself, as a 
gold eagle would be, a '^'^quid pro quo'^ for the meat he 
has furnished you. When passed back to the government 
for taxes or other public dues, it is a mere counter for 
canceling reciprocal obligations. Its only support, as it 
flies hither and thither, is that word '' dollars" which 
means real value — a certain weight of gold or silver — • 
which, some day, it will bring to its bearer. Withdraw 
that word or nullify its meaning by a hint or a suspicion 
that the government never means to redeem the promise, 
and it will drop at once, like a* dead leaf to the ground, 
speedily to decay. Yet, men talk as if a nation^s trade 
could be carried on with a currency made of these govern- 
ment promises, forever irredeemable. 

A credit currency can circulate only i7i the country 



CREDIT CUEREKCY TENDS TO RAISE PRICES. 351 

foTiere it is issued. There it inevitably supplants gold and 
silver whicli are sent abroad to adjust exchanges with 
other countries. If, as is sure to be the case, these notea 
are issued to an amoun^ exceeding the natural demands of 
trade for a medium of exchange, their value will be depre- 
ciated, and specie, as compared with them, will bear & 
premium. That premium will rise or fall as men's conli 
dence in the ability or pohcy of the government varies, and 
its amount indicates the extent to which the currency is 
depreciated. It is not the value of gold which changes, 
but that of currency only. In such circumstances, no 
direct legislation can prevent or fix the premium on gold, 
nor change it except for the worse. The force of civil law 
IS as powerless to resist the operation of the laws of value 
as was the voice of the old Danish king in England to stay 
the inflowmg ocean-tide. 

A credit currency tends to raise the prices of all com- 
modities, and to keep prices fluctuating. The paper sym- 
bol comes necessarily into comparison with values of every 
kind. It has in itself no natural basis of value. It rests 
on credit only, not at all on its cost. Its acceptability de- 
pends mainly on the lioj^fes, wishes and anticipatioiis oi 
men. In a time of general confidence, the government i? 
led to over-issue its promises. The effect is at once to en- 
hance prices ; and the first consequence of this is tha^ 
trade is unnaturally stimulated tnd demands a yet larger 
issue of currency, until the day of reaction and distrust 
comes. In the actual experience of nations as recorded in 
history, it appears that no government, once drawn into 
the issue of a credit currency, has been able to adhere to 
its purpose, often taking the form of a distinct promise, to 
limit the issue to a certain amount. The door once open 
is not easily shut — the power released is not easily curbed 
again. Mr. Walker says with truth, " When the Secre« 
tikry of the United States Treasury endeavored to ^^ float '* 



852 EXCHANGE. 

his bonds by the issue of credit currency, he nnfortunafcely 
floated all the merchandise of the country at the same 
time,- so that the rise of prices compelled him to pay 
double for all the government needed ; and hence he lost 
at least one -half of all the bonds that were thus sold." At 
the same time, it produced a mischieyous disturbance in 
all commercial transactions, essentially changing the fo:c8 
of existing contrac^-s and reducing the yalue of fixed 
incomes. 

Through this enhancement of prices, a credit currency 
lays a direct tax on a people, which is measured by the 
degree in which the currency is depreciated. If a ten 
dollar treasury note will buy only eight dollars w^orth of 
merchandise, at the gold prices, he who uses the note 
really pays a tax of two dollars in making that purchase. 
The government laid this tax, though it gets no benefit 
from it, except through the extension of its credit. If 
fiuch a currency is never redeemed, the country is taxed for 
its whole amount, but the tax is very unequally distrib- 
uted. If it is finally paid, the sum total is greatly increased 
through the enhanced prices paid by the government for 
things needed in the hour of its extremity. For that 
final payment, some contraction of currency is inevitable, 
and while it is going on, business has to be done on a 
' falling market," that is, with prices declining. This 
makes men groan and murmur ; they forget tliat they are 
only paying the cost of their cherished illusion — the appar- 
ent prosperity of the day when the inflation of the cur- 
rency gave them what they deemed the benefit of "a ris- 
ing market." 

A Credit currency is a forced Loan, This appear 
from the manner in which it is issued. Note for example 
the course of our government in issuing its treasury notes. 
It was in immediate need of provisions and munitions of 
war. Instead of raising meuns for this exigency by taxes 



EVILS OF CEEDIT CURREKCT. 353 

or the sale of bonds, only, it contracted with mannfactur- 
ers and producers for the articles needed and gave in pay 
ment these promises. In other words it borrowed the 
ships, guns, ammunition, provisions, etc., in the first in- 
stance of those who produced them, and then to relieve 
them from carrying the whole burden of this loan, by the 
legal tender act, it obliged everybody to share it. All 
were compelled to accept greenbacks for whatever might 
bo due them, and so every bearer of a greenback is made 
for the time a creditor of the government. 

A credit currency thus involves a violation of the 
laws of value and an inevitable disturbance of the com- 
merce and hidustries of a nation* It has also a demoraliz- 
ing effect on the honor and integrity of a people. The 
longer they are kept familiar with it, the more is the tone 
of moral sentiment among them corrupted. Austria pre- 
sents a sad example in point. "We give the sketch as 
drawn by a trustworthy historian for the state of things 
in 1816. Though that state is in a better condition now 
her moral and commercial character still suffers from the 
same malady. Thus we read : 

" Undeniably the paper money exercised the worst in- 
fluence on the morale of the people. Frugality and dili- 
gence were lost virtues. Vulgar pleasure-seeking and 
wild extravagance became habitual even in the lowest 
classes. Of what use to care for the future ? Why not 
enjoy to-day all the pleasures of the senses ? How could 
any one hesitate to pay two hundred gulden for admission 
to a ball ? In fact, the "money" had no value, and if 
OLe stood reflecting, he might lose ball and money both. 
The very fact of speaking continually of large sums,, w^hicb 
however in truth amounted to but very small value, stim- 
ulated to frivolity and folly. So the ground was prepared 
for developing the celebrated * Viennese ' disposition ; and 
^he loafer-life in which the hot-spiced pleasurei of th« 



354 EXCHANGE. 

palaie seemed the highest good, became indigenous to th« 
unique city of the emperor." 

No thoughtful observer can fail to observe similar ten 
dencies growing steadily stronger in our country, as our 
credit currency continues its presence and influence in the 
land. The act of a government creating such a currency 
is a direct interference with the rights of property and 
with the fundamental law of exchange, which requires the 
free consent of parties to ail transfers, and the mainte- 
nance of contracts in full force. That act can be Justified 
only by stern necessities, in circumstances which jeopard 
the nation's existence. When the crisis is safely passed, 
the nation is under the highest conceivable' obligation to 
oend all its energies to fulfill its promises, to reheve the 
general disturbance and distress, and to restore the bright- 
ness of its com»ncrcial honor, as speedily as possible 



CHAPTER XXIII. 

PROTECTION OE FREE-TEADE. 

Definitions. As a technical term of Political Econ- 
smj, Protection expresses the principle that in order to 
promote home-industry/, the importation of certain articles 
from countries lohere xhey can he produced cheaper tha7i at 
home, should he prohibited or restricted ly heavy duties. 

As a term of the same science, Free-trade expresses 
the principle that a nation^ s wealth and prosperity are test 
•promoted ly securing the utmost freedom for the exchange 
of all commodities among its own people, and with the people 
6f other countries. 

From the bare statement of these principles, it is evi- 
dent that they are opposed to each other, propounding 
two distinct and conflicting economic systems. We have 
accordingly two schools of political economy in which the 
expounders of the science are classed as they advocate the 
one or the other of these principles. In practical legis- 
lation, also, two opposing policies corresponding to these 
two principles have been in conflict through all the history 
of our nation. The issue may be best considered with the 
two principles distinctly before us. 

It is obvious also that the system of protection touches 
all of the four branches of political economy. As propos- 
ing measures to stimulate home industry, it is directly 
concerned with the department of Production. As it 
aims to enhance the prices of certain commodities, it as 
directly affects Consumption. As it modifies both private 
profits and public taxation, it comes into contact with the 



356 EXCHAl^GE. 

laws of Distribution. And as it obstructs to some extent 
the freedom of commerce, it has to do especially with Ex- 
change. Such being the case, an advantage conferred by 
the system in one direction, may he offset by a disadvan>= 
tage produced elsewhere. Hence, for the intelligent dis« 
cussion of the question before us, the elementary princi- 
ples of our science in all of its departments must be kept 
in view as they have been already presented under its sev- 
eral divisions. 

It is generally admitted by both parties that, tliKioretic- 
ally, the presumption is i^i favor of Free- trade. This ap- 
pears from several considerations. 

1. For all economic processes and results, in their gen- 
eral aspect, the law of freedom is most favorable. This 
fact has come distinctly to view through all our previous 
discussions. Thus we have seen that for the production 
of wealth, labor and capital meet most advantageously 
when each is free to apply itself to whatever industry 
promises the largest returns. Economy in the consump- 
tion of luealth demands that all be free to purchase the 
means of gratifying their desires at the least expenditure 
of value practicable. The individual needs to buy where 
he can get the most for his money. It is equally for the 
interest of the community to bring its supplies from the 
cheapest market. We have seen too, that/rce competition 
is the g7'and regulator in distributing the proceeds of in-. 
dustry to the parties concerned, so that the labor, the 
skill, the capital and the managing capacity shall each 
•eceive its due share. It has further been made plain that 
the ultimate disposal of products, through the processes of 
exchange is most profitable with the widest range of market, 
tlie freest channels of communication and the best facilities 
for transportatio7i. The interests of these several depart- 
ments of economic action are linked together and in th« 



THE PRESUMPTIOlir 11^ FAVOE OF FREE TRADE. 357 

first aspect, the rule of freedom appears essential to the 
prosperity of all. 

2. The right of Froper'ty implies freedom for ei'ery &ne 
(j do luhat he will ^vith his owiiy provided he does not in 
fringe the rights of others. Any law restricting ihe freo 

xehange of one form of property for any other, or its free 
transfer from one place to any other is ^^ prima facie ''^ a 
violation of a natural, universal, inherent right. Every man 
is entitled to use the products of his own labor as may 
seem most for his advantage, to exchange them with citi- 
zens of his own country or with foreigners, as he may get 
for them the largest compensation. The denial of this 
riglit or the interference with it by a government, bears a 
eemblance, to say the least, of oppression, of robbery 
The presumption is against it. 

3. Tlie Social Instincts of men prompt them to thi 
practical adopt io7i of this principle of freedom of exchange. 
A solitary settler in the wilderness reduces his wants tc 
the minimum, and turns his hand to all sorts of occupa- 
tions to satisfy them, making himself hunter, fisherman, 
farmer, builder, blacksmith, and so on. When anothei 
joins him, a division of labor and free exchange begin. 
As numbers increase and a community is formed, diverse 
employments are more and more distinctly defined and 
distributed, mutual exchanges are multiplied, and both 
v/ants and the means of gratifying them rapidly increase. 
Instinctively efforts are made for opening easy communi- 
cation with other settlements, and for making that com- 
munication as free as joossible. Thus one after another, 
physical obstructions are removed, the winding trail gives 
place to an open road, bridges are thrown across the 
streams, steam supersedes sails for navigation, the loco- 
motive and rail-car are brought in to shorten distance as 
measured by time, and the electric telegraph, set up be- 
tween different and distant localities, annihilates time and 



358 EXCHAKGE. 

space jnd permits contracts and all operations of the com' 
morce of the world to be adjusted to present facts in all 
parts of the world. Every new discovery or invention 
which tends to increase freedom and facilities for ex- 
changes is hailed with joy by all civilized people. The 
common sense of men, expressed by their instinctive 
action, thus pronounces universal freedom of trade a com- 
mon blessing. The civiUzation of the world seems to ad- 
vance in accord with this principle. Hence, the presump- 
tion triat it is a wise and right principle. 

4. Free commercial intercourse hetiveen the nations of 
the earth tends evidently to establish their mutual relatione 
upon a basis of peace and good-will. By the mutual ex- 
change of values, different peoples become acquainted and 
assimilated with each other, and the feeling of interdepend- 
ence creates a common interest out of which grow the 
bonds of abiding friendship. Within the last two hun- 
dred years, international law has come to the dignity of a 
distinct science. Its development and growth have been 
coincident with the expansion of commerce under the im- 
proved facilities secured by recent inventions. The spon- 
taneous and necessary intercourse of nations originates in- 
ternational law, and leads to the establishing of rulefi for 
governing that intercourse. The more the principles and 
rules of this department of law are studied, the more 
clearly does it appear that through free commercial rela- 
tions, the separate interests of all nations are bound to- 
gether in one, so that each is concerned in the welfare of 
every other, and each is induced to place itself in an atti- 
tude of friendship, rather than of enmity towards others. 
Free-trade appears thus the promoter and pledge of peace 
in the world. The broad competition which it incites 
tends to swell the sum of human comforts and joys, and to 
impel every branch of the race to improve to the utmost 
the cx)nditions of human living. 



ARGUMENTS TOE PEOTECTION". 359 " 

6. The nations of men are of one Hood and constituU 
fyfie family ; and all the face of the earth luith its great 
diversity of resources and productions is given to the om 
human race. The Wessin-gs which the earth has to yieU 
are developed in largest measure, as the people of every 
land devote themselves to the production of those forms of 
tvealth for which their country is best adapted ; and the 
happiest distribution of those blessings is secured by inter- 
communication and mutual exchanges made as free as pos- 
sible between all nations. In the constitution of our 
nature, in the divine Scriptures and in the records of 
l.uman experience alike, we read this fundamental, eco- 
nomic law. The enmities, the restrictions, the isolations 
which human selfishness has prompted and maintained are 
in violation of this law. The miseries consequent, 
under which the nations have groaned, are but the penalty 
of violated law. The broad philanthropy which Chris- 
tianity inculcates and aims to make universal for the 
world's emancipation from all evil, embraces this principle 
of freedom for trade. 

In view of these things thus concisely presented, we 
are certainly justified in saying that in the issue before us, 
the presumption is strongly in favor of free-trade. On 
the advocates of Protection therefore is thrown the burden 
of proof for their principle of restriction. We attempt a 
fair and candid statement of their arguments. 

Argtunents for Protection.— These argumenta 
concentrate on the promotion of home-industry, and vary 
only as they severally present different aspects of the lead 
mg thought. It is said, 

1. Protection is necessary to secure that variety of in* 
dustry and that balance of different industries which are 
essential to a people* s prosperity. This is the broad propo. 
sition which underlies aU, and ia. a sense, includes all the 



360 EXCHAITGE. 

lines of argument adopted by the advocates of this system. 
The proposition embodies two statements which are tha 
premises of a syllogism. The major premise is that a bal 
anced variety of industry is essential to a people's prosper- 
ty. The minor premise is that Protection is a necessaiy 
means to this varied industry. If both are established as 
Bound and true, the conclusion follows that the protective 
policy is a necessary means of highest prosperity. 

The first statement may be resolved into several par 
ticulars to bring out its full force, as follows : 

a. Every country has a great variety of resources, and 
the development of all its resources conduces to its great- 
est wealth. 

t. Among the population of every country, there is a 
corresponding diversity of native talent, .and labor is most 
effective when every one has scope for doing that for which 
he is best fitted. 

c. The actual wants of men are equally diverse, and 
xhe highest happiness of a community depends on the 
degree in which all are provided for. 

d. A diversity of occupations makes a liome-marlcet for 
all sorts of products, saving cost of transportation, favor- 
ing division of labor, and binding all classes together by 
ties of mutual helpfulness and common interests. 

e. Varied industry favors tlie social and moral advance- 
ment of a people, quickening and broadening minds, en- 
larging hearts and impelling to noblest action in the lines 
of reo-titude and benevolence. 

These considerations sustain the major premise of the 
argument, and there is really no question raised respecting 
that. The proposition that a variety of industry is advan- 
tageous to the general prosperity of a people is in accord 
with all the elementary principles of Political Economy 
which have come before us in our previous discussions^ 
and is readilr admitted on all hands. 



ARGUMEl^TS FOR PEOTECTIOl!^. 361 

The real issue is joined on the second premise. Is pro- 
tection necessary to secure the diyersified industry so much 
to be desired? The advocates of the protective system 
strongly afB.rm that it is, and the strong reason urged in 
support of that opinion is thus presented. " Foreign com' 
'petition crushes out the home ^production of all 'but the 
rudest and coarsest articles of manufacture, and prevents 
the establishment of a varied industry unless the govern- 
ment interfere, as the personification of the nation, and 
its co-ordinating poiver, to restore the equilibrium by dis- 
couraging imports^ 

Under this general statement, the following distinct 
points are made. 

a. Superior natural resources, or more abundant cap- 
ital, or cheaper labor, or greater skill and improved ma- 
chinery may enable manufacturers in another country to 
produce certain articles more cheaply than they can be 
produced at home. These advantages come as the natural 
result of the age of a country and long experience in par- 
ticular industries. One country may thus have superiority 
over another in a branch of production only from having 
begun it sooner. 

b. If the way is open, the country having these advan- 
tages can at first control the market in one less favored. 
Having once gained that control, it will do all in its power 
to keep it. For this end, in the competition with home 
products, it can and w^ill offer its goods at prices below 
their actual cost, long enough to break down younger and 
weaker rivals in the other country, depending on greater 
future profits from raised prices when it shall have secured 
its monopoly of the market. 

c. Facts are adduced to show that English manufac- 
turers, our chief competitors, have repeatedly pursued 
this course Avith reference to certain industries in this 
country, especially those concerned wdth manufactures of 



362 EXCHANGE. 

cotton, woolen, and iron. This course has sometimes been 
carried so far as quite to overcome the effect of our tariffs. 

d. And yet England is alleged to have gained her supe- 
riority and ability to do this by means of a protective tariff 
long and vigorously maintained. After having availed her- 
self of the full benefit of this policy until she could com- 
mand the markets of the world, she adopts and advocates 
the principle of free-trade from pure selfishness, aiming to 
deprive other countries of the ladder by which she rose to 
her ascendancy. 

e. The introduction of a new manufacture is a matter 
of costly experiment, and individuals should not be ex- 
pected to bear the whole burden of carrying it on at theii 
own loss or great risk, until they are strong enough to 
compete with those v/ho have had a long training and suc- 
cessful experience. A protective duty is the most con- 
venient mode in which a nation can tax itself for the sup- 
port of such an experiment, and for its defense against 
such over-reaching. 

/. It is contemplated that this burden will be but tern- 
'porary, and will be more than compensated by the greater 
ultimate benefits of a diversified industry fully established. 
Protection is needed to nurse our manufactures in tlieif 
infancy, and to hasten their development. After being 
thus supported for a time, they will grow strong enough to 
defy foreign competition. Then prices will be reduced, 
the tax can be removed, and a lasting benefit will be 
realized. 

g. This foreign competition bears directly and hardly 
on the luages of labor. The general rate of wages in our 
country is higher than elsewhere. This is considered an 
advantage, as it raises the laboring people as a class to a 
higher grade, multiplies the comforts and improves the 
conditions of their home life, and increases their intelli- 
gence, skill and efficiency. It is desirable that this advan- 



PROTECTIOI^ I^ECESSART TO INDEPENDENCE, 363 

tage be retained, though it enhances the cost of produc- 
tion. Bat the crowded population of the old world and 
usages which have grown out of prevalent artificial dis- 
tinctions of classes in society, and consequent modes of 
living, have reduced wagee to a bare sufficiency to sustain 
life. If the competition of foreign producers is made free 
our manufacturers will be compelled to bring the rate of 
wages here down to the level of what is called "the pauper 
labor" of Europe. This plea respecting the wages of labor 
is used with great popular effect, and is therefore very 
prominently and persistently urged by the advocates of the 
protective policy. 

The bearing of Foreign Competition as thus presented, 
underlies all the arguments employed to sustain the pro- 
tective policy. Admitting, or assuming, on this ground, 
the necessity of this policy in order to develop and main- 
tain diversified industry, several specific arguments are 
urged which are of some weight, and are worthy of a dis- 
tinct notice. Thus : 

2. Protection is said to de a necessary mums of 
maintaining national independence. Two phases of in- 
dependence are contemplated as desirable. First, in- 
dependence in the sense that a nation should have within 
itself, as far as its climate and general physical condi- 
tions permit, the means for supplying the ordinary needs 
of its people. So far as it is unable to meet any of these 
wants, it is dependent on the contingencies, the freaks, 
and the tricks of producers in other countries. In great 
emergencies, this may expose a people to great embarrass- 
ment and oppression. To avoid this, they need to have all 
the varied resources of their own country developed so as 
to be always at their command. Moreover, a people who 
devote themselves to a few specific products, go into com- 
mercial exchange at a disadvantage, having little variety 



364 EXCHAT!^GE. 

to offer in foreign markets^ and so often, giving to foreign 
purchasers the chance to dictate the price at which their 
few products will be received in exchange. 

Second;, It is of the highest importance that a nation in 
time of war should be independent of foreign countries 
with respect to the supplies of subsistence, arms, ships, 
ammunition, and whatever else is essential to the success- 
ful maintenance of the struggle. It is quite essential, 
therefore, that in time of peace encouragement be given to 
those manufactures which, in the emergency, can be readily 
turned to providing military equipments. 

S. The advantages of a liome-marhet for agricultural 
products present a strong reason in favor of the pro- 
tective policy. Many agricultural products are perishable, 
and will not bear long transportation. All of them are 
bulky, and hence their transportation is expensive. The 
farmer who can find in a near manufacturing village a 
market for his produce, can determine what articles vvill 
be most profitable for him to raise. He can save for 
himself the profit which v/ould go to the middle-man, 
since he comes into direct contact with the consumer, 
and he can select the time most favorable for bringing 
his products to market. Protection favors the estab- 
lishing of manufacturing centers all over the country, 
thus bringing a market to the farmer's door, and enabling 
him to make a ready sale of his products at the best 
prices. 

4. Protection is regarded as favoring the fullest and 
hest application of the principle of division of lahor. In 
every community, there is found a great variety of indi- 
vidual talent and taste. It is desirable that every one 
should devote himself to that occupation for which he is 
best adapted. The man who is endowed with mechanical 



EETALIATOKY DUTIES. 365 

genius, cannot do bis best and tbe most for tbe benefit of 
tbe woiidj tied down to the plodding labor of the field. 
Protection opens for him the door of a manufactory, in- 
vites him in and gives scope for the unfolding of his best 
powers for the highest advantage. Within the same estab- 
lishment opportunity is given for the employment of per- 
sons of varied capacities, the strong and the weak, male 
and female, the old and the young, each according to abil- 
ity, bearing a part in multiplying comforts and increasing 
wealth. It is in this way that superior skill is developed. 
The protective system which fosters such varied industry, 
seems essential to realize this desirable result. 

5. Protection is often advocated as a means of Betalia- 
tion for commercial disalilities imposed ly other nations. 
A foreign government bars out our products, and we, in 
order to punish her and oblige her to change her policy, 
refuse to receive hers. Some reciprocity is necessary to free 
and profitable commerce ; and sometimes the best way to 
secure this is to make the party v/hich refuses it feel the 
wrong which he commits. 

6. An argument in favor of the policy of protection is 
drawn from the fact that tlirough the centuries past it lias 
been generally adopted hy the commercial nations of Chris- 
tendom^ and is still approved and advocated hy statesmeri of 
clear intellect and practical -wisdom in tliis and other lands. 
The theory comes to us thus an inheritance of the past, 
supported by a kind of prescriptive right from long usage. 
The wise and able statesmen and economists, such as 
Hamilton, Franklin, Madison, and their compeers, who 
founded our republic, and framed its constitution, intro- 
duced this policy, regarding it as necessary to foster our 
manufacturing industries, to provide purchasers for our sur- 
plus food-products, and to place our young nation on a par 



366 EXCHANGE. 

with older nations for a fair and equitable interchange of 
commerce. This policy, though a constant theme of dis- 
cussion, and subject to many changes in application, has 
been continued through all our history, earnestly advo- 
cated by many of our ablest congressmen and senaxors, 
such as Webster, Clay, and others. Thus protectioii ap- 
pears sustained by high authority, and the unexampled 
growth of our country in wealth, and in all the elements 
of true prosperity, seems to demonstrate the wisdom of 
this policy. 

We have thus presented concisely the leading lines of 
argument on which the advocates of the protective policy 
rely. Let us turn now to the other side, and see how 
their opponents meet this reasoning. 

As has been already intimated, the advocates of Free- 
Trade give a ready assent to the first premise of the main 
argument as stated in the form of a syllogism. They ad- 
mit the advantages of varied industry, and magnify them 
in support of their own theory. But at the same time, 
they insist on one qualification. It does not follow from 
that admission that a people must lay heavy burdens on 
their most important interests in order to develop at once 
every source of wealth which their country ofiers, or to 
maintain at all hazards every possible form of industry. 
In some cases, a nation may have such peculiar advantages 
for a certain kind of production that its wealth will be 
most rapidly and favorably increased by concentrating its 
energies for a time on that, to the neglect of others. With 
this qualification, admitting all that can be said in favor 
of diversified industry, the opponents of the theory of pro- 
tection meet the second premise with a flat denial of the 
proposition. 

Against the assertion ih^i protection is necessary to en- 
sure diversified industry, they affirm that tliere is a letter 



IKDUSTEY A iq-ATURAL GROWTH. 36? 

und surer way of reacliing that result. Where no inter- 
ference or obstruction is allowed, there comes a spontaneous 
development \yhich is safe and constant because it is m 
accordance with nature's law. The thought may be un* 
folded in a few distinct yet connected propositions as 
follows : 

a. There is a natural groivth of human industry, the 
laws of which are as fixed and certain as those wliich per- 
tain to the growth of vegetation. 

l). Free competition is the healthy stimulus to that 
growth. 

c. Under the natural law of development, industry will 
be applied to the several native resources of a country as 
fast as the increase of lalor and capital will warrant. 

d. Men's instinct for accumulation following diverse 
individual capacities, tastes and predilections, is the safest 
guide to determine the order in which labor and capital 
shall be applied to those various resources. Under it, 
whatever promises a profit will be undertaken as soon as it 
can be without sacrificing a greater profit elsewhere. 

e. The attempt to force labor and capital into certain 
employments before their time, deranges the order of 
nature and produces reactions which hinder the desired 
result. 

/. At any stage of this development, if exchange is 
free, foreign products are purchased with the fruits of a 
people's most efficient lahor, that is, with those articles 
which they can then produce to the best advantage ; which 
they can best afford to part with, because they are obtained 
at the least cost. By all such advantageous trade, capital, 
the prime element of varied industry, is increased and labor 
is sustained. 

g. When by this natural progress, a people come to take 
up a new industry for which they have natural advantages 
and God-given capacity, no foreign competition can crush 



368 EXCHANGE. 

it, for even in its infancy, it is charged with the nation's 
life and strength. 

h. An industry which is not indigenous, which has no 
natural advantages, or which is prematurely set up and 
fostered by artificial means, can have only a siclcly, uncer- 
tain life, and is supportect at a wasteful expendittcre of a 
nation's resources. 

Turning then to notice the main argument from the 
effect 0? foreign competition, it may fairly be asked how 
foreign competition is able to crush out home production ? 
The answer must be that in some other country, certain 
articles can be produced more cheaply than at home. It 
may be asked again, why their production costs less abroad. 
According to the principles of our science, the answer 
comes that it must be on account of peculiar advantages in 
three respects. Either the foreign country has superior 
natural resources, or it has more abundant capital, free to be 
employed in the contemplated industries, or it has laborers 
in greater numbers and better skilled for the work to be 
done. The argument implies that the interference of gov- 
ernment discouraging imports, tends to counterbalance 
those advantages which the foreign land possesses. Obvi- 
ously it will do this so far as those engaged in the protected 
manufacture are concerned. The action of the government 
forces up the prices of the favored products, so that they 
can make the goods and realize a profit. But evidently, 
this is at the expense, of the community generally. The 
^uty is a tax laid upon the many for the benefit of the few. 

For illustration, suppose that English broadcloth can 
be sold in Beloit, at five dollars per yard, but it will cost 
eight dollars a yard to manufacture cloth of the same 
quality here. To encourage home-industry, a duty of three 
dollars per yard is laid on all English cloths imported. 
This will prepare the way for that industry to be set up; 



WHAT PEOTECTIOH CAKKOT DO. 369 

but plainly it is sustained only by a tax of three dollars a 
yard, paid by every one who wears broadcloth of eithei 
domestic or foreign production. The real benefit of this 
tax goes to the manufacturers. The case is the same as it 
would be if, without the duty, every man had been allowed 
to buy cloth at five dollars a yard, but had been obliged for 
every yard that he bought to pay three dollars to the 
home-manufacturer. This is a steady draft on the capital 
of the country — a burden laid upon the products of other 
forms of industry. 

Turning again to the main proposition and considering 
it under the laws of production with reference to the three 
particulars of resources, capital and laborers, it is quite 
evident that protection cannot add to the natural resources 
of a country, so as to put all countries in this respect on a 
level. Protection can never give to France the coal-fields 
of England, nor furnish the prairies of Illinois with the 
water-powers that abound in ISTew England, nor secure to 
Germany the facilities for raising cotton which the southern 
states of our republic enjoy. 

What protection does to accomplish the result claimed 
for it, must be then, through its effect on capital or kibor. 
The enactment of a protective tariff obviously cannot create 
capital. Capital springs and grows only by industry and 
frugality. It is the fruit of saving. As products are in- 
creased and expenses diminished, there is a chance for 
adding steadily to capital the difference between wealth 
consumed and wealth produced. But, as we have seen, a 
protective tariff enhances the price of certain articles of 
general consumption. It may touch the materials of in- 
dustry ; it may touch things necessary to the support of 
laborers. Just so far as it does this in either direction, it 
increases the cost of production and the cost of living, and 
thus diminishes the chance for saving. It makes capital 
less effective except in the line of the protected industry. 



370 EXCHANGE. 

The capital of the community generally is impaired, not 
strengthened. 

Much the same thing must be said oi the effect of this 
policy on labor. Legislation has no power to create men. 
The natural increase of population depends chiefly on the 
means which a country possesses for the support of a popu- 
lation, and the facilities it offers for the accumulation of 
wealth. Where the necessaries of life are abundant, and 
there is free scope for profitable employmenfc, large families 
are raised. The same considerations constitute the chief 
jittraction to draw in foreign laborers. Men emigrate to 
better their condition. The first effect of protection is sim- 
ply to concentrate labor on one employment, and to lay a 
special burden on all others for the benefit of the fayored 
occupation. Nominal wages may thus be raised, but real 
toages are reduced by the enhanced price of the necessaries 
and comforts of life. This means that the stimulus to 
labor generally and its efflciency are impaired. 

The advocates of protection in their reasoning, seem to 
lose sight of the fact that this policy can do little more than 
to change the direction of both capital and labor. When 
articles of foreign production are imported, they are to be 
paid for by the products of home labor and capital, and 
the question of economy is, which is the cheapest — which 
will bring the largest returns for a certain amount of labor, 
to make these articles ourselves or to make somethiag 
else with which to buy them ? Left free from government 
interference, home labor and capital will lay hold of what- 
ever natural resources a country possesses, and with refer- 
ence to both home wants and foreign wants, produce tht^ 
things most feasible and desirable, at the cheapest possible 
rates. The surplus of these products will pay for the for- 
eign goods purchased. Intelligent judgment and free 
choice determine the direction given to capital and labor, 
to establish those industries which are most advantageous. 



DOES PKOTECTIOK PROTECT? 371 

But protection comes in to oyerrule this spontaneous 
action. It assumes that a government can judge bettei 
than themselves what is for the people's advantage, and sc 
dictates a diversion of capital and labor to new employ 
ments. Such a change is in itself a disadvantage. It 
involves more or less loss of capital and of skill in labor. 

The real power to resist foreign competition and to 
avoid its control over our market is to come not by forced 
efforts for the premature establishment of particular indus" 
tries, but by the natural increase of laborers through births 
and immigration and by strengthening the capital of the 
country, generally in making the most for a time of its 
special advantages. With these two elements of strength 
well developed a 23eople may turn to whatever form of in- 
dustry its resources favor, with assurance that the efforts 
of foreigners to break it down by the ruinous process of 
selling their goods below cost will prove vain and disastrous 
only to themselves. 

The ablest statesmen of England are saying now with 
apparent truth, that her ascendancy as a manufacturing 
nation has been gained not by means of her protective tariff, 
but, in spite of that long cherished delusion, by the native, 
indomitable energy of her people in the wise use of the pe- 
culiar resources of nature with which her territory is so 
richly furnished. The result is believed to have been hin- 
dered rather than hastened by her restrictive policy. 

The protectionist says, it is not expected or demanded 
that protection shall he permanent. It is asked only that 
the costly experiment shall be thus sustained, till the new 
manufacture is introduced and established. This plea is 
met by the incontrovertible fact that in the history of 
protective legislation, no "infant industry" that has been 
nursed by this policy has ever grown to such maturity of 
strength and self-support as to be ready, voluntarily, to 



372 EXCHANGE. 

dispense with the helping hand of law and face foreign 
competition in its own strength alone. The English land- 
holders clung to their corn-laws to the last. The iron 
manufacturers in our country have at times^ under high 
tariits, done extensive business and made great profits, but 
they have kept up the prices of their product and always 
resisted every proposed reduction of the duty. Is not this 
fact a virtual confession that '^Protection fails to protect,^'* 
that this interference of government to direct the industries 
of a 23eople fails of its aim ? 

To the argument from the bearing of competition on 
the wages of labor, the free-trader says, the expression 
^-pauper labor " is a mere bug-bear. The wages paid for 
labor constitutes but a small proportion of the cost of pro- 
duction in most manufactures. The laborers in England 
who are lowest in the scale of living are those engaged in 
agriculture. Our agricultural laborers, though they have 
no benefit from protection, may safely defy their competi- 
tion. The nominal wages of skilled labor employed in 
manufactures in England, are lower than those of the same 
class in this country. But there is little difference in the 
real wage§ of the two — that is, the low wages of the Eng- 
lish artisan v/ill go quite as far as the higher rates paid 
here, in securing the necessaries and comforts of life. The 
high rate of wages in our country is due not to our protect- 
ive tariff, but to the better chances of the laborer here to 
improve his condition, especially by taking our cheap land 
and bringing it under cultivation. There is no restriction 
on the importation of labor, hence the competition which 
our laborers have most to fear is that wdiich comes from 
the free and rapid introduction of poor laborers — poor, in 
every sense — from the old worlds Our protected manufac- 
turers are very ready to avail themselves of the "pauper 
labor" thus brought in to compete with our people on 



IJTATIOI^AL II^DEPEKDEIfCE. 37S 

their own soil. The rate of wages in free-trade England 
is higher than that of G-ermany under the system of pro- 
tection. Yet English goods can be manufactured at less 
cost and sold at less prices than German goods of the same 
sort. This is on the general principle that loell paid labor 
is the most efficient lahor. In energy and inventive spirit 
onr people surpass all other peoples on the globe, and the 
greater efficiency of their labor may safely be depended 
on to offset any advantage which manufacturers can de- 
rive from their lower rates of wages. 

To the argument in favor of protection as a means of 
maintaining national independence, reply is made as fol- 
lows. Eor an individual and for a nation, there are two 
kinds of independence. One may withdraw from his fel- 
low-men to a cave in the wilderness and in contact with 
none else, keep himself alive and possibly find interest and 
enjoyment in a hermit life. He may glory in his inde- 
pendence. But is there anything noble in such isolation ? 
Is it the way for a man to make the most of himself ? Is 
this the kind of independence which young men should be 
taught to aspire to and maintain ? The independence of 
genuine manhood is of another sort. It is individuality 
of capacities, acquisitions and character vdiich is able to 
stand on its own basis in full and free relations with fel- 
low-men. It is, in the midst of society, a distinct person- 
ality, giving and receiving, supporting and supported^ 
blessing and blessed through the varied intercourse which 
nature prompts and by which the completest development 
of the man and of the race is advanced. 

The same distinction is to be recognized with respect 
to nations. There is an independence of isolation such as 
China and Japan, until recently, maintained. But that in- 
dependence which is the strength and glory of a nation is 
of another kind. It is an individAiality of national re* 



374 EXCHANGE. 

sources and character which stands iip in the full brother 
hood of nations, and in the consciousness of its own strength 
enters into all offices of mutual dependence through which 
nations grow and civilization makes progress. 

The policy of protection fosters the narrower kind of 
independence. It is a restrictive policy. Carried out to 
its logical conclusion, according to its manifest tendency, 
it leads to isolation. 

In an economic point of view, the real independence of 
a nation is commercial independence. That is reached and 
secured, as a people, by the development of their own 
resources, are able to provide for themselves, in part by 
their own productions, and for the rest, by commanding 
the needed productions of other nations, by offering in the 
market of exchange, what other nations want. The basis 
of such independence is the home production of wealth. 
But the way to increase wealth is to use to the best possi- 
ble advantage the gifts of nature, and then, in the world's 
great mart, sell where things can be sokl on the best terms 
and buy where things can be bought on the best terms. 
That nation is strongest and most complete in her inde- 
pendence, which can open most freely every avenue for the 
wealth of the world to flow in upon her, because, as the 
fruit of her own vital energies, fi-eely exerted, she has 
wealth in abundance to give a fair equivalent. 

A nation comes to this full maturity by a steady nat" 
ural growth, just as a child comes to full manhood. In 
botli cases, freedom is the law of growth. The effort by 
protection to hasten a nation's independence is like bind- 
ing an infant's limbs in splints, that it may sooner stand 
alone. The artificial appliance may develop prematurely 
a single function, but it is at a wasteful expense of genera] 
vigor, and is quite sure to induce chronic weakness and 
deformity. 



FREE-TEADE PROMOTES A HOME-MARKET. 37o 

To the protectionist's argument, from the advantages 
of a home-market, it is repHed, that tlie assumption that 
protection creates the home-market is without foundation. 
These centers of yaried industry grow up naturally and 
healthily with the increase of population and wealth. Me- 
chanical geniuSj the investigating turn of mind, the energy 
of will-power, managing capacity — these qualities come not 
of protective tariffs. They are the gifts of God to men. 
Left to themselves, they go out spontaneously to lay hold 
on all gifts of God in nature, and using all available capital, 
3et up the workshops of industry, and bring out the treas- 
jires of wealth in ever-increasing measure. 

Furthermore, the term "home-market" has force in 
this discussion, only as it implies the production at home 
of all manufactures wanted and the consumption at home 
of all agricultural produce raised — a condition of things 
attainable, if at all, only after the lapse of centuries. 
Meantime, a people must buy the things they cannot pro- 
duce, by selling the surplus of that v/hich they can pro- 
duce. For a long time to come, this country will have a 
large surplus of breadstuffs, cotton, petroleum, silver and 
gold to dispose of. We can sell to others only as we give 
others a fair chance to sell to us. Domestic commerce and 
foreign comuierce are necessarily interlocked. The prices 
of agricultural produce in our home-markets are determined 
by the prices in markets abroad. Where trade is freest, the 
prices will on the average be the best. Hence, Free-trade 
is the hest promoter of a sound and healthy home-marlcet. 

It is said again that a similar unwarranted assumption 
underlies the plea that protection favors the division of 
labor and the development of skill. The natural develop- 
ment of diversified industry proceeds by a steady application 
of the principle of division of labor suited to each stage of 
progress. So long as wages are higher in our country 
than abroad, they will bring to our aid the best acquired 



376 EXCHANGE. 

skill of the old world. For the deyelopment of advanced 
skill and the invention of new devices, free, sharp competi- 
tion is the highest stimulns. Protection interferes with 
this and thus removes the spur to best endeavor. 

On the argument for Retaliation it may be fitly said. 
This certainly is 7iot a virtuous nor an lionoralle motive to 
action in either an individual or a nation. Retaliation is 
not generally wise, since in the hot spirit of vindictiveness, 
it prompts men to measures which are likely to injure them- 
selves as much as their opponents. A worthy example of 
self-reliance and manly generosity will be more effective to 
lead another country to change her policy, than any threat 
or act of retaliation. If the narrow policy of another nation 
excludes our products, so that wo cannot trade directly 
with her, it may yet be both feasible and profitable to pro- 
cure her products by means of a double exchange through 
a third country. Vv^e surely injure ourselves when we pay 
five dollars for an article which we could just as well get 
for three. There is no profit in the mere gra,tification of 
spite. Moreover, it is a rule that works both ways ; a high 
protective tariff provokes retaliation as has been illustrated 
iu the recent action of France and Germany laying restric- 
tions on the importation of food-products from the United 
States. 

The fact that the protective policy has had the sanction 
of long usage, and is still sustained by the advocacy of not 
a few wise and able statesmen, must be admitted, and at 
first view it seems to have weight in the discussion. But 
tracing the policy back in history, we find its origin in the 
old doctrines that nations are natural enemies to each 
other — that in every profitable exchange toJiat one gains 
must he anotlier^s lo^s — that commerce can benefit one 
country only as it injures another — and that according to 



THE WAYS OF C02J5-GKESS. ' ' 377 

tli€ old Mercantile System, a nation's wealth is increased 
only as money is brought in and held fast. These false 
doctrines formerly led to most harassing restrictions on all 
commercial intercourse. The different trades were organ- 
ized as rival and hostile guilds, each fenced round with 
secrets, and endowed with peculiar privileges. Tolls were 
collected at every city's gates on all goods brought in. 
Each nation sought to build up its own industry by break- 
ing down that of others. Hapjoily with the advance of 
civilization and improved facilities for intercourse, other 
and better views have supplanted those old doctrines, and 
the absurd regulations have been for the most part aban- 
doned. Yet the protective theory still lingers the last 
fliase of feudal isolation, and strange .to say, rules with 
strongest sway the policy of our free republic. One reason 
for this is that what tlie feiu protected manufacturers gain 
is obviously clearly seen by all, while what the many con- 
sumers lose is concealed from view. If the losses of the 
million were as patent and palpable as the jorofits of the 
few, no nation would tolerate the system for a day. 

Furthermore, to any one who has studied the tariff dis- 
cussions in our Congress for the last fifty years, it is ^\mxi 
that it is almost impossible to secure there a fair consider- 
ation of the question on its merits. Personal and party 
interests sway the decision far more than a regard for the 
highest general welfare. One who has carefully investi- 
gated the matter says, " It can be historically demonstrated 
that no protective duty was ever laid in the United States 
from the beginning of this government till this hour, ex- 
cept at the instance and under the pressure of the very 
men who expected thereby to get artificial prices for their 
w^ares at the cost of their countrymen." " The strength of 
ProtectioQ has been in the greed of men who hoped to be 
aggrandized thereby." "We are not justified in saying that 
all who, in- our national legislature, favor protective tariffs 



378 EXCHANGE. 

are swayed by the lobby force, of able men, backed by a 
great money power, who watch closely all tariff discussions ; 
but it is plain that between that influence and considera- 
tions affecting the ascendancy of this or that political party, 
it is not easy to find a statesman whose vote expresses an 
independent, disinterested judgment on the subject. The 
tendency is now strong throughout Christendom, to set 
aside past usages and throw off all artificial restrictions on 
international trade. It is certainly to be hoped that our 
government will not long resist the spirit of liberty and 
fraternity which is rallying all nations to mutual good- will 
and co-operation. 

Positive Objections to the system of Protec- 
tion are urged by the advocates of Free-trade, on account 
of evils which proceed from the actual operation of the 
system as follows : 

1. Protection introduces and fosters antagonism hetween 
ilie different industries of a country. The idea of giving 
protection to every branch of industry is absurd. The 
theory implies special encouragement to the production of 
certain articles. But when government interferes to favor 
one industry by raising the price of its products, it taxes 
all other interests. The duty on foreign coal is a benefit 
to those who work our coal-mines, but an injurj^ to every 
manufacturer who uses coal. Hence collision of interests 
between the producers and the consumers of coal. The 
wool-grower finds that the duty which protects the woolen 
manufacture increases the cost of his clothing, while the 
competition of cheap wools from abroad keeps down the 
price of his product. He applies for protection. But if 
granted, this will reduce the manufacturer's profit, and he 
protests and resists. Thus two parties whose interests are 
really one, are set against each other in a conflict injurious 
to both. The boot and shoe manufactures of our country, 



PKOTECTIOK TEKDS TO OYEE-PKODUCTIOK. 379 

through the Yankee genius for invention, v/ith no special 
protection, grew naturally into one of our most profitable 
branches of industry. But a duty laid on leather and 
hides, for somebody's protection, robbed our manufac- 
turers, in part at least, of their rightful advantage in the 
world's market. The duty on foreign steel profits thirty- 
five hundred persons engaged in the direct manufacture 
of steel in the United States to the disadvantage of two 
hundred thousand who use steel as raw material for tools, 
etc. — and at increased expense to fifteen hundred thousand 
who have occasion to use the products of steel. The few 
more easily combine to perpetuate their advantage, on 
account of each one's large and immediate interest; 
while the disadvantage is distributed in smaller propor- 
tions to the many and their eyes are only half opened 
to discern its measure and its cause. But the conflict 
begins to be defined and the issue must in due time be 
joined. 

2. The unnatural stimulus given hy protective legisla^ 
tion leads to over-production and consequeyit stagnation 
and failure. The first effect of a high duty is to raise 
prices and so to increase the profits of the protected indus- 
try. Men eager to get this advantage turn capital and 
labor into this form of production and push their business 
with great zeal. Old establishments are enlarged, new 
establishments are hastily and ignorantly set up. They 
are run by untried managers, worked by inexperienced 
hands and turn out an imperfect product in great profu- 
sion, till the market is glutted, prices decline, and the end 
is stagnation, and with many, bankruptcy. No branch of 
industry in our country has been more clamorous for pro- 
tection than the iron interest. None has been more con- 
stantly favored, and none has suffered more from these 
fluctuations. 



S80 EXCHAisGE. 

3. Protection diminishes the legitimate revenues of tlie 
government, at the same time that it lays a heavy tax on 
the 'people. A government must be sustained by revenues 
derived from taxation. The imposition of equitable duties 
on imports is admitted by the advocates of free trade as a 
legitimate mode of raising a revenue. A strictly revenue 
tariff has no disturbing influence on trade, nor does it con- 
flict with the free development of a nation's varied indus- 
try. But a protective tariff has another end in view. That 
end would be most fully attained by duties high enough to 
prevent altogether the importation of certain articles. If 
it attains its end in any degree, it must restrict importa- 
tions. In either case, it reduces the revenue actually de- 
rived from this source. Meantime, the whole community 
is taxed by the extra thirty, sixty, or whatever per cent is 
added to the price of every yard of silk, and every pound 
of iron, etc., consumed. 

4. The policy of protection, in its application must be 
unstable, disturbing the course of industry by frequent 
changes. This follows inevitably from the conflict of in- 
terests referred to. As soon as a high duty on iron shows 
its effects in prices, all who nse iron as the material of 
their industry begin to clamor for a change of the tariff in 
that particular. Again, the advantage which protection 
gives is eagerly sought by all. Hence on the one side, a 
pressure to extend the tariff-list, is resisted on the other by 
an effort to make the singular privilege exclusive. Under 
these influences, it is impossible to settle an order which 
shall be permanent. It is a historical fact that scarcely a 
session of our Congress passes without attempts to change 
the tariff. It never is nor can be made satisfactory to all. 
This changeful legislation works disaster on particular en- 
terprises, and throws uncertainty into all arrangements and 
plans of business. A protective tariff can never be made 



THE PKOTECTIVE POLICY DEMORALIZIiq"G. 381 

fair and equal to all, for its fundaraental principle is an 
unj list favoritism against which those not favored instinct- 
ively protest and contend. 

5. Protection tends to demoralize our natio7ial Iegisla-= 
tion. The so-called ^'lolhy infiuence^'^ at Washington has 
become proverbial. It is an influence which works to 
carry through enactments of law by regard to private in- 
terests, rather than to principles of right applied to the 
public weal. The lobby is thronged with representatives 
of certain manufactures seeking to obtain or to perpetuate 
special protection. They use money freely, not perhaps in 
the way of direct bribery, but in a way to work influence. 
The consequence is that, to a great extent, legislation on 
the tariff is determined by the bearing of certain measures 
on a pending election, or on interests which especially con- 
cern the constituents of congressmen. Bargains are made 
to combine the friends of separate measures, when votes 
are given. This mode of disposing of questions becomes 
habitual. It opens the door for subsidies and other cor- 
I'upt measures. All proposed acts come to be judged of 
not by their real merits as right and good for the state as a 
whole, but by their relation to personal emolument, place 
and power. Genuine statesmanship is thus over-ruled 
and degraded. These tendencies are not to be charged 
wholly on protection. But it is evident to every careful 
observer that these corrupting influences are the natural 
outgrowth of this policy, and concentrate around the meas- 
ures which it dictates. 

6. Protection tends to corrupt tlie public morals and the 
puNic service. It offers strong temptations to the viola- 
tion of law by smuggling. Against this temptation, the 
consciences of men oppose but slight resistance, because 
the tariff law rests on no grounds of absolute right. On. 



382 7i:XCHAN'GE. 

the contrary, it is easy for men to persuade themselves 
that these enactments are nnjust. Eespect for the law 
and its force, as a rule of action generally, are thus im- 
paired. The nice sense of honor and right, is deadened 
and the making of false invoices, the swearing of false 
oaths and direct bribery at the custom-house aro regarded 
as venial sins. Very naturally, government officials are 
drawn into direct collusion and partnership with these 
crimes and betray the sacred joublic trusts with which they 
are charged. The corruption which thus attends the col- 
lection of duties at the port of New York is notorious. 
Honest importers have been at times compelled to abandon 
the attempt to bring in foreign silks, paying full duties, be- 
cause the market was full of smuggled goods. The same 
thing is true of many other articles on which the duty is 
high. The Hercules who is equal to the task of cleansing 
that Augean stable, by some measure of '* civil service re- 
form'' has not yet appeared. The evil is so inherent, that 
there is reason to believe it cannot be eradicated except by 
the overthrow of the system; meantime it is diffusing a 
subtle moral poison through our whole body politic. 

Historical Results are often brought forward with 
confidence by the advocates of protection. The historian 
Froude says '•' It often seems to me as ii history was like a 
child's box of letters with which we can spell any word we 
please." In the use of this kind of argument, there is con- 
stant danger of running into the logical fallacy of ^' non 
causa pro causa'^ — of giving a mere coincidence the force 
of a cause. The remark is especially true concerning the 
subject before us, because what seems like a state of indus- 
trial and commercial prosperity is often illusive, and where 
it is real, it is the effect of many causes combined, or the 
resultant of opposing forces. Thus the wonderful activity 
of business in our country just after the late war closed, 



HISTORICAL RESULTS. 383 

was generally considered as betokening sound prosperity. 
Later experience has shown that the nation was then acting 
under the wild delirium of a burning fever. 

It is a fact that the Jewish money-lenders in mediseval 
times, grew rich and thrived when persecuted, defrauded 
and oppressed without mercy by kings and feudal lords. 
Shall we say that their wrongs were the cause of their 
thrift ; or that by their persistent energy under the passion 
for gain, they grew rich in spite of oppression ? So also the 
industry and commerce of European cities from the twelfth 
to the fourteenth centuries steadily increased amid hostile 
rivalries between tliemselves, narrow restrictions on con- 
flicting guilds and constant exposure to plunder by robber 
barons. It would surely be a mistake to say that the sub- 
jection to these rivalries, restrictions and robberies was the 
cause of their prosperity. It is a fact that in England, 
the protective policy has been till within the last forty 
years, persistently and vigorously maintained. It is also a 
fact that while this policy prevailed, England grew in 
wealth and power through her manufacturing and com- 
mercial industries. But does the coincidence of these two 
facts in time establish the relation of cause and effect 
between them ? The truth is that where there are large 
material resources in a country, and vital eiiergy in its 
people, industry will develop wealth in spite of all obstruc- 
tions, just as from the vital force of an acorn dropped into 
a cleft of the mountain, will spring the oak, in its steady 
growth rending the rocks that cramp its roots, and defying 
the whirlwinds that twist and strain its gnarled branches. 
Until within the last half century, the protectiye policy 
has ruled the industry of the world. Free tr«,de has had 
scarcely a chance to try its experiment. Yet its principles 
have been clearly illustrated and sustained in the hundred 
years' history of our nation's independent life. The states 
of our republic, in their extent of territory, their diversity 



384 EXCHANGE. 

of resources, the yaried races and endowments of their 
population and their distinctive interests, constitute a 
world by themselves. Fortunately, our constitution for- 
ever forbids the protective policy to restrict their trade 
with each other. A broad arena is thus presented for the 
experiment of free trade. For more than forty years the 
course of that experiment has been watched in the unfold- 
ing growth of the young state of Wisconsin. Her main 
industry was at the first and must long continue to be agri- 
culture. But as population has poured in, and agriculture 
has yielded a surplus of home-capital, and a basis of credit 
has been laid for the introduction of eastern capital, every 
kind of industry suited to her climate and conditions has 
been successfully established. Her mines have been 
w^orked, her water-powers have been utilized, villages and 
cities have sprung up spontaneously, and the diverse gen- 
ius and taste of her sons have found at home ample scope 
and stimulus for profitable exercise. According to the 
theory of protection, the competition of ISTew England 
manufactures, brought in freely by the best facilities for 
transportation, should have precluded the making of like 
products here. But the facts are all against the theory. 
Woolen factories, cotton factories, shoe factories, watch 
factories, iron works, machine shops, paper mills, estab- 
lishments for making agricultural instruments, etc., all 
have been started on a comparatively small scale indeed, 
but with a success and prosperity that promise to be 
abiding and expanding. This is the result of a brief but 
fair experiment of the principle of free trade. It confirms 
every phase of the theory and shows that what is pliilo-^ 
sophically sound and true is also practically safe and wise. 
This discussion may fitly be closed with a few sentences 
quoted from Eoscher, a German writer who treats the 
whole subject with nicely balanced judgment and good 
sense. 



KOSCHER QUOTED. 385 

» 

"The sacrifices wliicli the protective system directly 
imposes on the national wealth consist in products, fewer 
of which, with an equal straining of the productive forces 
of the country are produced and enjoyed than free trade 
would procure. But it is possible by its means to build up 
new productive forces, to awaken slumbering ones from 
their sleep, which in the long run may be of much greater 
value than those sacrifices." 

" If therefore the protective system could materially 
promote a national industry, or if it made such industry 
possible, for the first time, the sacrifice connected there- 
with in the beginning, should be considered like the sacri- 
fice of seed made by the sower; but this can be justified 
only on the three following conditions : that the seed is 
capable of germination, that the soil be fertile and properly 
cultivated, and the season favorable." 

'' The industrial protective system can be justified as an 
educational means only, on the assumption that it may be 
gradually dispensed with ; that is, that by its means there 
may be a prospect of attaining to freedom of trade. In 
the case of all highly civilized nations, the presumption is 
in favor of freedom of trade, both at home and abroad, 
and in such nations the desire for a protective system must 
be looked upon as a symptom of disease." 

"As a rule, only such industries should be favored 
which by reason of the natural capacities of the country 
and of the people, have a good prospect of being able soon 
to dispense with the favors accorded." 

"The repeal of an import prohibition, or the abolition 
of a tariff approaching to a prohibition should be an- 
nounced long enough in advance, to enable the capital 
invested in the protected industry to be withdrawn with- 
out too heavy loss." 



CHAPTEK XXIV. 

EAILWAY CORPORATIONS. 

The operations of exchange are aided by all facilitiei 
'ioY free communication and for the transportation of per- 
sons and goods between different sections of a oountry and 
different parts of the world. Steamships and ocean tele- 
graphs have changed the methods of foreign commerce. 
Domestic trade and industry have been yet more affected 
by the modern system of Railway transportation. The pen 
of an eminent jurist has set forth with both truth and elo- 
quence the benefits derived from this means of swift pas- 
sage. "Railroads," says Judge Paine, "are the greai 
public highways of the world, along which its gigantic 
currents of trade and travel continually poui —highways 
compared with which the most magnificent highways of 
antiquity dwindle into insignificance. They are the most 
marvelous invention of modern times. They have done 
more to develop the wealth and resources, to stimulate the 
.ndustry, reward the labor and promote the general com- 
fort and prosperity of the country, than any other or per- 
haps all other mere physical causes combined. There is 
probably not a man, woman or child, whose interest and 
comfort has not in some degree been subserved by them. 
They bring to our doors the productions of the earth* 
They enable us to anticipate and protract the seasons. 
They enable the inhabitants of each clime to enjoy the 
pleasures and luxuries of all. . . . There is scarcely 
a want, wish or aspiration of the human heart which the? 
do not in some measure help to gratify." 



NATURE OF A RAILWAY CORPORATIOK. 387 

But every power for good may be abused and perverted 
mto a power for evil. Experience reveals a tendency in 
great railway corporations to acquire and to exeieise des- 
potic power, in a way to obstruct trade and to bring g 
blight upon productive industry — a power which sometimes 
aims by base means to control legislation, and sometinu i 
attempts to defy the law. Grave and complicated prob- 
lems are thus presented which need to be studied in the 
light of economic principles. Our science has certainly 
something to contribute towards the practical solution oi 
these problems. 

The Nature of a E.ail"way Corporation. There 
are to be recognized three distinctive features. 

1. Such a corporation is a Creature of the State. I 
originates in a legislative act. This must be so for three 
reasons. First, because it is peculiarly a function of the 
State to provide highways of travel and trade for the gen- 
eral benefit of its people. Second, because the making of 
such highways involves an interference with private prop- 
erty which can be warranted only by the authority of the 
State in the exercise of its sole right of " eminent domain " 
for a public advantage. And Third, because the con- 
struction, equipment and operating of an extended railway 
.8 an operation of such magnitude as to require the capital 
and energies of many to be combined. 

2. Such a corporation is an Agent of tlie State. The 
considerations just named would justify the government 
of a State in taking upon itself to provide and manage 
railways for the public good. Belgium and some other 
European states do thus entrust this entire interest to the 
direction of government officials. But the policy of oui 
government is, in accordance with the economic principles 
heretofore presented, to enlist private enterprise as far as 
practicable in all undertakings which directly concern in' 



388 EXCHANGE. 

dustry and trade. Accordingly in the legislative aot wliich 
creates a railway corporation, the government does two 
things. First, it constitutes of a number of associated 
indinduals an artificial person with a distinctive name, tc 
act by one united will, capable of receiving, holding and 
con reying property, of entering into contracts and incur 
ring debts, of suing and being sued. The body corpoiate 
thus formed, is in the eye of the law, a civil person possess- 
ing certain rights, enjoying certain privileges and exercis- 
ing certain functions for a speciiic object. Second, the 
government transfers to this body corporate certain of its 
own sovereign powers, especially that of eminent domain, 
that is the power to take private property lor public use 
on making due compensation to the owners ; ana charges 
it with the fulfillment of its own legitimate functions 
namely, providir^g the public with facilities for the trans- 
portation of persons and goods. The powers are granted 
with reference solely to the function contemplated. A 
decision of the United States Supreme Court declares that 
^' building a railroad, though it be built by a private cor- 
poration, is an act done for a public use," and again "in 
their very nature railroads are public highways." Chief 
Justice Shaw, of Massachusetts, says, '* the real and per- 
sonal property necessary to the establishment and manage- 
ment of a railroad is vested in the corporation, but it is in 
trust for the public." It is therefore, as an agent of the 
State, that a railway corporation takes land from its citi- 
zens and establishes a highway of intercourse and commerce 
for the public service. Hence in the very nature of the 
■;ase, its powers and vested rights cannot be held and exer- 
cised independently of the State. The government u 
false to its own sacred trusts, if it does not hold such cor- 
porations ever responsible in all respects for their conduct 
m the discharge of their proper functions. 

3. A railway corporation is in some degree a practical 



^^AILWAY COKPOEATIOKS. 389 

Menopvly. The private enterprise which undertakes, at 
an agent of the State to perform the service named, is en- 
titled to a just compensation. The members of the com- 
T)any invest their capital for expected profits. Their pri- 
'"ate interests are to be carefully conserved. The corpora- 
ion gets its compensation by collecting fares and freight 
charges for the actual transportation of persons and goods. 
That is, as an offset for the service rendered, the govern- 
ment allows a private company to tax the public who have 
the benefits of that service. But after a railway is once 
established, it controls the business of transportation for 
the section through which it runs. The only competition 
possible is that of parallel railways or water transportation. 
Hence the arrangement itself gives to the corporation a 
practical monopoly with the power of taxing the com- 
munity. 

This is probably the best way of making remuneration 
for the service. If the government performed the same 
service by a bureau of its own appointed officers, it would 
tax the community in the same way. There is no just 
ground for compliiint of this monopoly as a method of pay- 
ing for a valuable service ; nor of its legitimate exercise to 
secure generous returns for capital and labor employed. 
But it is evidently liable to abuse. The government has 
need therefore, to subject the business to reasonable condi- 
tions and to retain such power over it as to guard the pub- 
lic against oppression. Mr. Mill very fitly says, " the 
State should either reserve to itself a reversionary property 
in such public works, or should retain and freely exercise 
tlie right of fixing a maximum of fares and charges and 
from time to time varying that maximum." 

While railway corporations are creatures of the State, 
called into being to serve as agents of the State for the 
accomplishment of certain purposes, they are also to be 
regarded as parties to contracts with the State, entitled te 



390 EXCHANGE. 

Jnst reward for their services, and having private nghti 
and interests always to be respected and guarded. On 
ihe part of the State, the object distinctly contemplated 
is to develop the material prosperity of the people. On 
the ])art of each corporation, the object never lost sight ol 
w to realize a profit for the capital and labor which it em- 
'loys. These two objects are not necessarily opposed to 
each other. On the contrary, each is best promoted when 
qualified by respect for the other. This will appear more 
clearly as we study next, 

Tlie Relations of Railway Corporations to 
general Industry. 

1. By transportation, they give to all products tJiat 
last addition of value which comes from their being in the 
[places where they are most needed. They directly perform 
^ kind of labor essential to the increase of wealth. The 
Importance of this labor cannot be over-estimated. It links 
itself with every other kind of labor and is necessary to de- 
velop the full results of all industry. 

2. They enlarge the market for all products, and so 
jielp to maintain the natural equilibrium of supply and 
demand. They bear away the surplus productions of one 
section to meet the deficiencies of another, to the relief of 
both ; and the industry of both is thereby stimulated. 

3. Thei^ quicken exchanges and thus hasten the rcturna 
from both capital and labor. Hence they tend to reduce 
prices, and at the same time to make them more remun- 
erative. 

4. The husiness of the railways depends upo7i the pro- 
ductiveness of hidusfry. The demand for transportation 
\8 proportioned to the amount of products to be carried 
a it of a country. We have seen that the ability of a peo- 
ple to trade depends on the surplus of goods they have to 
dispose of. That which goes oat must pay for what i? 

17 



ADMIIi^ISTEATIOK vE KAILWAY COKPOEATIOKS. 391 

brought in. Hence the bountiful crops which reward the 
labor of agriculture, large proceeds from the mines, the 
success of all manufacturing industry, all subserve the 
I rofits of the railways. So too, the UbC of railways fox 
ti-ayel depends on the increase of individual wealth. It is 
for the interest of these corporations that all whom they 
serve should grow rich. It is better for themselves* and 
for all concerned that their profits should be increased by 
enlargement of business rather than by increasing the rates 
of charges. It is both right and politic for railways to 
favor the prosperity of industry all along their routes, in 
ill intermediate places, as well as at the extremities. 

5. By abuse of their power as monopolies, the railway 
corporations may diininish the returns of all industry. 
They may set their rates so high as virtually to deprive 
producers of the advantage of an enlarged market. Thus 
the railway charges for transporting the agricultural pro- 
ducts of the West to the sea-board sometimes absorb all 
the difference in prices. When increased demand abroad 
has raised the price of wheat in the foreign market, the 
railways have been known to increase their charges so as 
io cover all the advance, and rob the Western farmer of 
jiis share in the advantage. Such a course must be de- 
Dressing to industry. It is possible in the relations of the 
parties, but it is a violation of mutual rights in these re- 
lations. Harmony and co-operation characterize the true 
relation of railways to all other departments of productive 
industry. It is a foolish short-sighted policy which, for a 
temporary advantage, disregards this fundamental truth. 

The Administration of Railway Corporations 

l*he construction and operations of railways require great 
outlays for which large accumulations of capital are neces- 
sary. This capital is in part gathered by subscriptions for 
stock J in part, it is obtained bv the use of credit. Tha 



392 EXCHANGE. 

original corporators pledge themseWes for certain shares 
Then the public and especially the people along the pre 
posed route are called to add their subscriptions. The cali 
is urged by pleading the benefit to be derived from the 
oad, and by the promise of profits to stockholders. In 
Biany. cases, farmers and other citizei^s, unable to advance 
money, have been induced to give their credit by mortgag- 
ing their farms and homesteads. Cities, towns and coun- 
ties also have been persuaded to tax themselves, or to lend 
their credit in the form of bonds for the benefit of the 
road. The stock is then widely distributed to great num- 
bers of persons. The corporation is composed of all stock- 
holders. Such a body is manifestly unfitted for the details 
of business. The corporation is therefore organized by the 
election of a Board of Directors which may be continued 
or changed at each annual meeting of stockholders. To 
this Board is entrusted the choice of officers and the gen- 
eral administration of the company's affairs. A mighty 
'power is thus concentrated in the hands of a few 7nanagers, 
Since at meetings of stockholders, votes on all questions 
are taken by count of shares, absentees voting by proxy, it 
is not difficult for the managers, by commanding a major- 
ity of the shares, to control action and retain their power. 
The minority are helpless to resist this powxr. The di- 
rectors may be true and faithful to the interests of the 
corporation and of the public, so that all shall be well ad- 
ministered. They may use their power to subserve inter- 
ests of their own, antagonistic to both. 

Great abuses proceed from the selfish policy and ruin- 
i)us administration of railway managers. By lavish expen- 
diture, and the reckless use of credit, the entire property 
and franchises of many railways have passed under fore- 
closure of mortgages into the hands of bondholders. In- 
dividual stockholders thus lose ail they had invested in the 



ABUSES FROM EAILWAY MANAGERS. 393 

enterprise. Worse than that, many an humble citizen oi 
farmer has to give up his homestead or farm, or struggle 
for years to clear it from the mortgage given for his stock, 
with nothing to offset his loss. 

The interests of minor stockholders are often sacrificed 
In another way, which can best be explained by an actual 
instance. The B. & C. railway was doing a prosperous 
business, which paid hai?dsome dividends and commanded 
for its stock a premium in the market. The B. & D. rail 
way, running out of the same city in another direction, wa 
much embarrassed so that it yielded no profits, and ita 
stock was almost worthless. The managers of the B. & 0. 
in concert with some others, bought up at very low rates 
the greater part of the B. & D. stock, and then using, oi 
rather misusing the power of their official position, merged 
ihe stock of the good road in that of the other. The con- 
/eauence was that the B. & D. stock rose at once to seven- 
!old its former value, the advantage of which inured to 
the benefit of its shrewd managers and their friends, while 
Hundreds of innocent holders of the B. & 0. stock saw 
their dividends cut off and their property reduced in value 
one-half, by the treacherous act which they had no power 
to resist and for the wrong of which they had no redress. 

Again we have cases like that of the ''Credit MoMlier''^ 
on the Union Pacific railway, in which some of the man- 
agers as individuals were organized into a distinct com- 
pany to contract for building the road. As managers, 
they let to themselves, in the above capacity, contracts at 
euch rates as made them rich, but tended to impov' 
erish the corporation of which they were the official guar 
dians. 

Not unfrequently railway directors operate on a large 

scale, in the speculations of the stock exchange, and manip« 

ulate the affairs of their own corporations so as to raise 

^r depress prices as may best suit their own advantage^ 



394: EXCHAl^GE. 

utterly regardless of the effects on public interestf or o i 
those whose capital is entrusted to their care. 

The process of ** watermg stock " so-called, in Lkc man' 
ner sacrifices public interests to the selfish greed of railway 
officials. Its effect is to lay on the public extra charges 
that dividends may be paid on double the amount of stock 
actually paid in. 

Sometimes the officers of a railway enr^age in the traffic 
of conunerce and change the rates of freights to suit their 
own advantage. Then by alternate ruinous competitions 
and grand co7nbinatio7is they throv uncertainty over all 
the transactions of trade, causiD^ fluctuations by w^hich 
many are made bankrupt while a few of the inside ring 
are enriched. 

Worst of all, is the abur> of the great money-potver of 
these corporations to carry measures of legislation for their 
own interests to the detriment of the public weal. The 
modest expression, ^^ putting money, bonds or stocks cohere 
ihey will do the 7nost good" means in plain speech, bribing 
Congressmen of weak consciences and buying up State 
legislatures. 

In speaking of these things, we have no sympathy with 
the indiscriminate tirade against these corporations, in 
which some indulge. We do not charge them as sinners 
above all others in these respects. Express companies, 
telegraph companies, insurance companies and other great 
monied corporations indicate more or less the same vicious 
tendencies. We advocate no blind ** granger" movement 
of open hostility. On the other hand, we hold in highest 
estimation the benefits conferred on the country by those 
corporations. We count worthy of all honor many men of 
highest integrity connected officially with them, who stand 
manfully for the correction of abuses and the just fulfill 
ment of their trusts. 

But a clear apprehension and consideration on the part 



EEEECT OF PUBLIC SEKTIMEKT. 395 

of our intelligent citizens generally, in the light of both 
ecouomic and moral principles, of the evil as well as the 
good involved, will worK out the surest corrective of the 
e\il and the truest safeguard of the good. O^ave ques- 
tions of legislation are before the country on which the 
people as well as their law-makers need to have an intelli- 
gent judgment. How shall the rights of innocent stock- 
holders be guarded against the machinations of unscrupu- 
lous managers ? How shall these corporations be protected 
in their just private rights, and yet be held under restric- 
tions and responsibilities which will keep them true and 
faithful in their legitimate functions as agents of the 
State for great public interests ? Shall all be left to the 
separate and varying action of the several States, or shall 
the national Congress exercise its constitutional power 
to regulate commerce between the States, by enactments 
which shall be uniform and authoritative over the whole 
country ? The wisest and profound est statesmanship in 
the land is needed for the solution of these problems. 

But back of all legislation, more effective than all stat- 
utes, is the sound public sentiment, formed and guided by 
a good conscience on the part of the body of our people — 
a sentiment which rests on an intelligent regard for th@ 
fundamental principles of Political Economy in this as in 
other applications — a conscience which holds individual 
conduct to the ways of justice and honor, and which ex- 
presses itself, through all channels of social intercourse 
and popular influence, in condemnation of treachery, 
fraud and robbery, however subtle and shrewd the pro- 
cesses, however grand the scale of operations; howevar 
tick the results of successful wickedness. 



CHAPTER XXV. 

COMMERCIAL CRISES. 

Speculation is the prime cause of commercial criaa. 
In its first and best sense, this word is but a name for tha 
foresight and mutual confidence which are indispensable in 
all operations of exchange. It has a bad odor only because 
of its abuse. Mr. McCulloch says " Every transaction iii 
whioh produce is bought that it may be afterward sold la 
.n fact a speculation." A merchant's business is to study 
the market so as to buy goods with a well-founded antici- 
pation of selling them at a profit. His success must de- 
pend on the clearness of his foresight and the good judg- 
ment and energy of his action. Credit too must enter 
more or less into both the buying and the selling. As the 
anticipations of profit grow bright and strong, the mer- 
chant is prompted to exert his purchasing power to the 
utmost extent of both his capital and his credit. As one 
does this, others catch the impulse and the spirit of specu- 
lation pervades the whole community, stimulating all de- 
partments of business to unwonted activity. Kept v/ithin 
proper limits, such a movement is healthful and safe. The 
trouble is that unwittingly, individuals pass the limit ol 
safety and are borne on by forces of which they are not 
sensible, till over-production, over-importation and the 
excessive extension of credit bring on a sudden revulsion. 

Wlien for whatever reason, prices are subject to consid' 
erable fl actuations, especially if they are connected with 
£n unstable currency, there springs up what Adam Smith 
calls " the trade of speculation" Tliis is a species of gam 



PANICS. 397 

hlhig, A class of men devote themselves to the study . i 
fluctuations, with a view not to actual trade, but to betting 
on the rise or fall of prices. At the Chicago corn exchange, 
for instance, two men enter into a contract, the one to de- 
liver and the other to receive ten thousand bushels of wheat, 
after thirty days, at a certain price ; the one presuming 
that the market price will decline before the day of delivery 
comes, the other that it will rise. The thought of an ac- 
tual transfer of the wheat does not enter the mmd of 
either. The transaction is a mere bet on the future price, 
and when the time matures, it is closed by the loser's pay- 
mg the difference between the market price and the price 
named in the contract. Such men throng the stock-board, 
the gold room, the corn exchange, the cotton market, the 
wool market. This, like all other gambling, has its tricks, 
its artificial appliances to affect prices. The " lulls " use al 
means possible to raise the market price, and the ** bears'^ 
jabor unscrupulously to depress it. These operations al- 
ways aggravate the rising fever of speculation in the com- 
munity. Men grow impatient of the "slow and sure" 
gains of regular trade, and are dazzled, like those who 
dabble in lotteries, by the vision of sudden fortunes. 

A Panic is the turning-point when the revulsion oc- 
curs; when baseless anticipations are disappointed and 
mutual confidence suddenly gives place to general distrust. 
When men have entrusted their property to the care of 
others, whatevf>r comes suddenly to shake their confidence 
may produce a panic. 

An individual or a corporation may thus be suddenly 
OTerwhelmed with 710 just cause. This was illustrated in 
the case of the National Gold Bank and Trust Company 
of San Francisco, in 1875. Just after a careful investiga- 
tion had shown the company to have assets amounting to 
$1,300,000 in excess of all liabilities, a check for $-1000 waa 



' 598 EXCHANGE. 

presented and payment was deferred in order that some 
:;rregularity in the form of the check might be corrected. 
Thereupon the holder of the check industriously circulated 
the statement that the bank could not pay a four thousand 
dollar check. This started a panic. The depositors rushed 
u to draw out their funds. After paying half a million 
the bank was compelled to close its doors and go into liqui- 
dation. 

Sometimes the undue expansion of credit for purposes 
of speculation in a single hranch of trade, brings on a 
panic and collapse. Mr. Tooke states a case which shows 
how credit in the simple form of book accounts may be 
expanded and lead to this result. In 1839, difficulties be- 
tween England and China threatened war. Anticipating 
a suspension of the importation of tea, certain dealers in 
that article hastened to buy up the stock in the market 
that they might secure a greater profit on account of the 
expected scarcity. This action itself disturbed the market 
as it was, and the price of tea rose rapidly till it was ad- 
vanced one hundred per cent. The anticipations seemed 
thus to be realized. One dealer whose capital did not ex 
ceed £1200, and that locked up in his business, pushing hia 
credit to the utmost, was able to purchase four thousand 
chests valued at £80,000. But the enhanced price of the 
article diminished consumption, and by indirect importa- 
tion, there came an unlooked for supply. The speculation 
failed. Those who had freely given credit to the specula- 
ting dealers were thrown into a panic which precipitated 
the crisis and aggravated the disaster to all concerned. 

The balance of men's judgment is apt to be disturbed 
by extraordinary profits from any production, and they 
are tempted to push their credit beyond safe bounds. With 
incr&ased income, they adopt a more luxurious style of 
living. At the same time, they make large outlays to 
extend what seems a profitable business. Such signs oi 



PANICS. 899 

prosperity make it easy to borrow, for the excitement 
affects lenders also. Thus out of a real fact, imaginatioii 
creates an illusion and all parties are led by a " Will o' tho 
wisp " away from solid ground. Suddenly the decei)tiv6 
light goes out, and lost in the swamp, each in the panic 
of the hour, trying to save himself, pulls his fellow down. 
Thus, a few years ago, thrifty farmers of the Connecticut 
Hiver Valley realized great profits from the culture of to- 
hacco. The sudden gains turned their heads. From their 
old frugal ways they ran into extravagance in living. To 
increase future profits, more fields were plowed, costly fer- 
tilizers were applied and expensive help was employed. 
The merchants and the banks freely gave credit to the 
prosperous farmers. All promised well, till through some 
freak of speculators in the market, prices declined. Then 
the crisis came and the gathered crop was hardly sufficient 
for a tithe of the debts for which it had been pledged. 
Under the panic, real wealth was sacrificed by forced sales 
and men of integrity and means, who with time to turn 
what they had, could have met all liabilities, went down 
with weak and reckless adventurers. 

Often a co^nhination of such influences affects the husi- 
ness of a whole coujitry through a general exjMJision of 
credit and bold speculation. The movement ordinarily 
starts with some real occasion. There may be on the one 
side, capital accumulated but unemployed, and on the 
other, rich resources of wealth which labor is waiting ta 
develop. It is the legitimate office of credit to unite these 
two elements of production. In such circumstances, 
their union yields extraordinary profits, and great ex- 
pectations draw out credit indefinitely. Under this un- 
wonted stimulus to every department of business, the 
Trhole community becomes infected with a mania of specu- 
lation. Credit starting from solid ground, pushes out its 
structure unsupported over a v^wning chasm, till it i? 



400 EXCHANGE. ■ . 

ready to break by its own weight Then wnatevei inci- 
dent comes to test it, reveals its weakness. The first crack 
of the framework sends out a report which starts a panic 
and the crash is inevitable. 

All this is well illustrated by facts of the commercial 
revulsion of 1837. During the earlier part of the preced- 
ing decade of years, all branches of business were highly 
prospered. Kailways and steam navigation on the lakea 
made an easy way for domestic and foreign emigration to 
go and develop the rich resources of our Western lands. 
This gave a healthy stimulus to the productive industry 
and commercial enterprise of the older States. By credit, 
unemployed capital was drawn into use and labor was in 
great demand. Interest, wages and the prices of goods 
rose together and all over the country, men were really 
growing rich. But they were not content with the old 
slow and sure progress. All foresaw that the cheap lands 
of the West must be rapidly enhanced in value. This 
promise of the future, working on the imagination, started 
a fever of speculation which spread like an epidemic. It 
was fed on credit universally extended. This extraordinary 
stimulus was intensified by political action connected with 
fche suppression of the United States Bank. The transfer 
of the government deposits to State banks and the distri- 
oution of the nation's surplus revenue among the States 
led to a great increase of the paper currency and to a 
tree extension of credit for all sorts of enterprises. In th( 
West, to supply the lack of money, "wild-cat" banks 
were established and issued their baseless circulating notes 
in profusion. Goods and lands and city lots were ex-^ 
changed for small payments of money— itself resting 
mainly on credit — and a large balance of credit on long 
time. 

Thus during the years 1835-6, the bubble of speculation 
was inflated to its utmost dimensions by the expansion ol 



EXPAN'SIOl^ AKD SPECULATIOl^. 401 

credit in every form. In the beginning of the year 1837 
there were in the country 634 banka^ with less than 138, 
000,000 in specie issuing |150,000,CO0 of notes and dis- 
counting 1525,000,000 of paper. Individual credit was 
proportionally extended. The wildest speculation was en- 
gaged v/ith Western lands and city lots. Not only the bold 
pioneers of the frontier but thousands of sober Eastern 
people were drawn into hazardous ventures. The site of 
Milwaukee was opened to white settlers in 1835-6. Its 
advantages were quickly discerned, and adventurers has- 
tened thither by hundreds. A city was laid out, and the 
pricies of lots doubled evej:y few weeks. Men who canw 
with nothing soon counted their wealth by thousands 
But sales were made almost entirely on credit, and thr 
quickly made fortunes really consisted of piles of promig 
sory notes, or of figures doubled in the inventory of lots 
whose estimated value could be realized only by the city's 
growth for twenty years. Yet nobody perceived the illu- 
sion ; the dream seemed reality for the time. Even the 
honest French trader, the original owner of the site, who 
was paid a substantial compensation for his title, embarked 
his little fortune again on the sea of speculation to be lost 
forever. Similar transactions were going on in hundreds 
of other places. 

At the same time, in the East, ideal fortunes suddenly 
acquired, prompted extravagance in dress and living which 
caused large importations of foreign goods. The real 
wealth of the country must go out to pay for these, es- 
pecially the gold and silver ; for credit currency never goes 
abroad. The way was thus prepared for a sudden and dis- 
astrous collapse. Its immediate cause was, strange to 
gay, the unusually large crop of cotton in 1836. Southern 
merchants and brokers had given the planters credit in the 
expectation that previous high prices would continue. But 
the price in the foreign market declined. The planters 



402 EXCHANGE. 

could not make good the difference, hence the cotton fac- 
tors could not meet their obligations to their New York 
correspondents, and their paper was dishonored at the 
banks. These failures created distrust, the panic followed 
and the bubble burst. Prices suddenly fell, banks sus- 
pended, business stopped and the financial chaos with it 
attendant stagnation and distress was universal, and con- 
tinued for several years. 

Such, with manifold slight variations, is the ordinary 
course of things in a general commercial crisis. The real 
mischief is done in the earlier stages, when all goes on so 
;p'ell that nobody thinks of danger. The panic is ine^ 
itable as soon as men begin to see on what a slender base 
they have been building their hopes and working out their 
schemes. The lessons of sad experience are, however, very 
soon forgotten, and these phenomena recur quite regularly 
in smaller and larger cycles of ten and twenty years. 

The practical problem is how to preserve and perpetu- 
ate the balance hetiveen confidence and caution — how to give 
Bcope for the use of credit with proper checks against its 
abuse. Lcirislation mav be called on to establish a stable 
currency and then to keep it stable by letting it alone ; also 
to provide equitable laws for defining and enforcing con- 
tracts, and then to maintain these laws with the least va- 
liation possible. As the chief means for avoiding the re- 
currence of these fearful convulsions, we must have a 
more thorough incorporation into the usages of business, 
of the simple principles of Political Economy. As of 
special importance in their bearing on this problem, we 
e^iterate the following : 

1. The natural standard of value and price for all arti 
Dies is the cost of production including a fair piofit. 

2. Though the alternations of supply and demand pro 
^lace more or less of temporary variation, there is a naturaJ 



EQUILIBRIUM OF PRICES. 40^ 

tendency tc an equilibrium of prices on this constant basis 
of cost. 

3. Stabk and healthy prosperity of business depends on 
fjiaintaininc, iliis equilibrium generally ; but mischievous 
ipeculation aims always to disturb it 

4. TJie true functions of credit are to bring accumnlate(\ 
capital into productive union with labor, and to facilitate 
exchanges by bridging over gaps of time and distance. 

5. When men purchase with credit, they draw upon 
fund which has no definable limit. High hopes impej 
men to extend their purchasing power to tlie utmost by 
adding to their ready money all the credit they can com- 
mand. This is the point of danger. 

6. This element in the market disturbs the equilibriuin 
of prices without respect to the true standard ; an artifi 
cial demand is created which finds no check because ad 
vancing prices and profits apparently increased, seem tc 
warrant the further expansion of credit. 

7. Hence comes that '^excess of speculative purchases^ 
which Mr. Mill calls the prime cause of a commercial crisis, 
and which leads to the sudden recoil of prices an 4 the con 
sequent collapse. 

8. The panic which follows is as rash and un*'<'^wning 
as was the confidence which blew the bubble, and pr<?cludea 
the application then, of any effectual relief. 

9. The necessity of turning all kinds of property into 
monej to meet indebtedness, fills the market with solbrs, 
while few are ready to buy, and prices sink as far below 
the standard as they were previously raised above it. 

10. Then production must be suspetided and bustn^s^ 
8tand still, till adjustments are made and the basis is lai.5 
for starting again by the true standard, with mutual coo 
fidonce qualified and restored 

At this date, 1878, the financial condition of the whole 



404 EXCHANGE. 

civilized world is and has been for three years, such as was 
probably never known before. Heretofore, separate nations 
have had their commercial crises from time to time, trace« 
Able to peculiar local causes. Now all civilized nationi 
Tcem to be brought at once and together into this condi- 
ion. Each country shows some symptoms peculiar to it- 
self, but in its general features, the distemper is one and 
the same everywhere. Suspended production, stagnation of 
trade, general distrust, bankruptcies, defalcations, strikes, 
idleness and distress of workingmen are reported from 
every quarter. We cannot pretend to offer a full explana- 
tion of the case, much less to prescribe a certain remedy 
Some things are apparent, however, which have contrib 
uted to this result, and may be concisely stated. 

First. Within the last sixty years, the invention and 
introduction of labor-saving macliinery has changed the 
methods and greatly increased the results of productive 
industry. The wealth thus produced is not at all in ex- 
cess of the needs of men, but the problem of its wise dis- 
tribution to meet those needs is not yet solved. 

Second. The use of expensive machinery for manufac- 
tures and of steam for transportation, requires that every 
kind of business be conducted on a large scale, witK large 
capital, and in large establishments. Hence a necessary 
expansion of credit and greater risks, both tending to in- 
crease the speculative character of business. 

Third. This large way of doing things, in coul action 
with the multiplied conveniences, comforts and luxuries 
of living, has induced a sudde^i increase of extravagance 
quite universal, in the habits both of business and of do- 
mestic life. 

Fourth. Steam navigation, railways and telegraphs now 
bold all nations in such close commercial intercourse, that 
when one suffers all must suffer with it 

Fifth. Wars now produce much more disturbance ol 



WARS AFFECTING INDUSTKT AND COMMERCE. 405 

general commerce than formerly. They are also vastly mora 
expensive, and leading to the extension of national credit, 
they work a yet greater disturbance of the world's finances. 

Sixth. Within the last twenty years have occurred 
two wars— that of the Rebellion in the United States and 
the Franco-German war in Europe — both affecting veiy 
closely tJie vital centres of the worlcTs industry and com- 
merce. 

These causes, many of them working silently and un- 
noticed for years, seem to have gathered to a head in these 
passing years, with such sad results as have been noticed. 
We cherish the fond hope that out of the present evil will 
come a greater good, in the better apprehension of the true 
brotherhood of nations, of the fundamental principles of 
Political Economy and of the application of these princi- 
ples both in minute details and in broad geueralizationa, 
to human industry and trade the world over 




Aj>aM Smith's Maxims on Taxatioii,249. 

AiHicted Classes, expenditures for, 130. 

Agriculture, a healthful employment, 
31; rent of lands for, 202; chief 
industry of Western States, 384. 

Agricultural products, home market 
for, 364. 

Amsterdam, Bank of, 384. 

Artists, compensation of, 187. 

Authors, compensation of, 188. 

B. 

^ANKS, origin of name, 330 ; agents of 
credit, 330 ; offices of, 330 ; histori- 
cal facts of, 333; of Venice, Ge- 
noa, Amsterdam, Hamburg, 334 ; of 
England, 335 ; Scotch system, 33G ; 
of France, 386 ; U. S. Banks, 337 ; 
State Banks, 338 ; safety fund and 
Suffolk Bank systems, 339 ; free 
Banking, 339 ; National, 340 ; lia- 
bilities of, 342 ; resources of, 343 ; 
profits of, 344. 

Barter, diflSculties of, 283. 

Brassey on wages, 161. 

C. 

Capital, defined, 73; origin of, 74 
forms, 76 ; consumption of, 79, 116 
productive and unproductive, 81 
fixed and circulating, 83 ; relation 
to labor, 88 ; general distribution 
of, 92; ratio of to labor, 93; re- 
muneration of, 197 ; may not claim 
all profits, 243. 

Clearing House, noticecl, 318. 

Coinage, purposes of, 301 ; U. S., 306. 

Combinations of employers, 110, 179. 



Commercial crises, causes of, 396 ; the 
turning point, a panic, 397 ; exam- 
ples, the Gold Bank of S. Francisco, 
397 ; the English Tea Speculation, 
398 ; Tobacco raising on the Con- 
necticut River, 399 ; the crisis of 
1837,400; the practical problem,402; 
disturbance of the world's finances 
in 1878, 403. 

Communism, 152. 

Competition, affects wages, 172; com- 
binations to resist, 175. 

Co-operation of labor and capital, the 
principle, 83 ; happiest in one per- 
son, 89: conditions which favor, 92; 
reward for each, 96 ; freedom to 
both, 103 ; promoted by moral and 
intellectual culture, 107. 

Co-operative associations, 110, 245. 

Consumption, its nature, 15, 112 ; kinds 
of, 113 ; natural, 113 ; accidental, 
114 ; immaterial and notional : vol- 
untary, 115 ; for reproduction, 116; 
for gratification, 118; public, 123; 
purposes of public, 125. 

Credit an instrument of exchange, 310; 
its nature, 310 ; forms, 311 ; func- 
tions, 314 ; abuses of, 322 ; mis- 
chiefs of abuses, 326. 

Currency defined, 345 ; four kinds, 345; 
evils of credit currency, 350. 

I). 

Desires, conflicting, 7. 

Distribution, what it implies, 16 ; scope 
of, 150 ; parties to, 152 ; subdivis- 
ion, 153 ; of profits, 239. 

Dividends, defined, 234 ; include inter- 
est and profijs, 337. 



IKDEX. 



407 



Division of labor, ttie principle, 48 ; 
special advantages, 51 ; limitations, 
58 ; incidental evils, 64 ; interna- 
tional, 66. 

Duties, specific and ad valorem, 253. 

E. 

EcoNOMT, rales of, 120. 

Education, expenditures for, 128. 

England, bank of, 335. 

Exchange, its scope, 16 ; nature of, 263 ; 
fundamental principles, 267 ; neces- 
sity of, 270 ; international, 272 ; 
agents, 275 ; money its Instrument, 
282 ; credit its instrument, 310. 

:/ees, to whom applied, 155. 

Foster, L. S., on taxing mortgages, 261. 

France, bank of, 336. 

Free-trade, defined, 355; presumption 

in favor of, 356 ; between American 

States, 383. 

G. 

Genoa, bank of, 334. 

Government, expenditures for, 125; 

revenues, 248 ; agency respecting 

money, 299. 

H. 

Hamburg, bank of, 334. 
Home-market, how formed, 375. 

I. 

Income tax, 256. 

Improvements, public, expenditures 
for, 126. 

Interest, defined, 215 ; rate how deter- 
mined, 218 ; why high in a new 
country, 225 ; not an index of pros- 
perity, 229. 



jEPrBET, Lord, description of steam 
engine, 47. 



liABOR, defined, 19 ; measures value, 19; 
kinds, 20 ; physical moves things, 
20 ; mental, what it does directly, 



21 ; what indirectly, 24; productive 
and unproductive, 25 ; changes ef- 
fected by, 26; means of increasing 
its eff'ectiveness, 32 ; cousumptiou 
of, 117 ; remuneration of, 154 ; nom- 
inal and real cost of, 156 ; efficiency 
aff"ected by various causes, 162. 
Land, ownership of, 141 ; under Feudal 
system, 144; nationalization of, 145, 

m:. 

Mercantile system, error of, 9. 

MiU, J. S., his fundamental principles 
of exchange, 267. 

Money, an instrument of exchange, 282; 
definition and functions, 284 ; a 
standard of value, 285 ; a medium 
of exchange, 288 ; essential quali- 
ties, 287, 290; articles used, 289; 
adapteduess of gold and silver, 293 ; 
general truths concerning, 296 ; 
agency of government respecting, 
299 ; coinage, 301 ; double standard, 
305. 

Monopolies, limit supply, 14. 

Moral and intellectual pleasures, eco- 
nomical, 120. 

NaturaIj agents, defined, 32; for cre- 
ating momentum, 35 : for applying 
momentum, 43. 

O. 

Over-production, what, 132 ; its causes, 
133; its relief, 135; cannot be univer- 
sal, 136 ; not the chief cause of stag- 
nation in business, 139. 

Ownership of land, 141. 

P. 

Panics, nature of illustrated by exam- 
ples, 397. 

Political Economy, the name, 3 ; de- 
fined, 4 ; fundamental laws, 4 ; ma- 
terials of the science, 6 ; regards 
self-interest, 6; its practical end, 
15 ; divisions, 15. 

Poverty, expenditures to relieve, 180. 

Production, defined, 15 ; involves labor 
applied to nature's gifts, 17. 



408 



IKDEX. 



Profits, meamng of, 239 ; how to be 
distributed, 242 ; part due to labor- 
ers, 246. 

Property, right of established by labor, 
5, 142 ; division of necessary, 97; to 
b^ secured by law, 99. 

Protection, defined, 355 ; arguments for, 
359 ; lays an unequal tax, 3^0 ; a 
restrictive policy, 374 ; positive ob- 
jections to, 378. 

R. 

Eailwat corporations, 386 ; creatures 
and agents of the State, 387 ; prac- 
tical monopolies, 389 ; relations to 
general industry, 390; administra- 
tion of, 391 ; abuses from managers, 
392 ; money power of, 394. 

Rent, defined, 199; kinds of, 200; Ricar- 
do's theory, 201 ; for agricultural 
lands, 202 ; in cities, 210 ; why less 
than interest, 212. 

Eicardo's theory of rent, 201. 

Restrictions on industry, mischievous, 
105. 

Roscher quoted, 384. 

S. 

Salaries, how applied, 154; principles 
governing, 185. 

Science, expenditures for, 127. 

Scotch banking system, 336. 

Socialism, 152. 

Speculation, defined, the cause of com- 
mercial crises, 396. 

Strikes, 175. 

Sumptuary laws, 106. 

Supply and demand, law of, 14; ad- 
justed by freedom, 227. 



T. 

Tariffs, 253. 

Taxation, relation to public expendi- 
ture, 123, 248 ; Adam Smith's max- 
ims, 249 ; direct and indirect, 250 ; 
American, 254; National, 255; State, 
257 ; double on mortgages, 260. 

Trades-unious, 176 

Transmutation, transformation, trans- 
portation, efi'ected by labor, ^6. 

XT. 

Usury laws, mischief of, 230. 

United States banks, 337 ; coinage, 306. 

Under-consumption, 138. 

^V. . 

Value, defined, 11, 264 ; distinct from 
price and utility, 12, 265 ; limits of, 
13 ; determined by cost, 266. 

Venice, bank of, 333. 

Wages, defined, 154 ; nominal and real^ 
156 ; rate of, how determined, 166; 
necessary, 167; customary, 171; af- 
fected by competition, 172 ; general 
law, 181 ; special causes aff'ecting, 
182. 

Wage-fund theory, 169. 

Walker, Amasa, on nominal and reji. 
wages, 157. 

Walker, F. A., on industrial efficiency. 
162. 

War, expenditures for, 131. 

Wealth, defined, 8 ; errors respecting, 
8 ; sources of, 10 ; how increased, 
11. 

Women's labor, remuneration of, 190. 



